Buyers as stakeholders: How relationships affect suppliers' financial constraints

Jennifer Itzkowitz

Journal of Corporate Finance, 2015, vol. 31, issue C, 54-66

Abstract: This paper examines the role of buyer–supplier relationships on suppliers' financial constraints. Buyers are non-financial stakeholders with both the ability and incentive to monitor their supplier and act as a certifying agent. This mitigates agency costs, reducing the wedge between the costs of internal and external funds resulting in lower investment–cash flow sensitivity and lower cash–cash flow sensitivity. I provide empirical evidence for this effect. The results highlight the importance of understanding buyer–supplier relationships when evaluating a firm's financing and investment policy.

Keywords: Investment–cash flow sensitivity; Buyer–supplier relationship; Monitoring; Financial constraints (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:31:y:2015:i:c:p:54-66

DOI: 10.1016/j.jcorpfin.2014.12.010

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