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Buyers as stakeholders: How relationships affect suppliers' financial constraints

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  • Itzkowitz, Jennifer

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.

Suggested Citation

  • Itzkowitz, Jennifer, 2015. "Buyers as stakeholders: How relationships affect suppliers' financial constraints," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 54-66.
    • Handle: RePEc:eee:corfin:v:31:y:2015:i:c:p:54-66
    DOI: 10.1016/j.jcorpfin.2014.12.010
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    9. Cheung, Adrian (Waikong) & Pok, Wee Ching, 2019. "Corporate social responsibility and provision of trade credit," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(3).
    10. Lian, Yili, 2017. "Financial distress and customer-supplier relationships," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 397-406.
    11. Chen, Gary & Tian, Xiaoli (Shaolee) & Yu, Miaomiao, 2022. "Redact to protect? Customers' incentive to protect information and suppliers’ disclosure strategies," Journal of Accounting and Economics, Elsevier, vol. 74(1).
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    13. Weiping Hu & Xiao Zhang & Ye He, 2024. "Cash flow sensitivity of cash: when should we use it to measure financial constraints?," Review of Quantitative Finance and Accounting, Springer, vol. 62(2), pages 637-682, February.
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    More about this item

    Keywords

    Investment–cash flow sensitivity; Buyer–supplier relationship; Monitoring; Financial constraints;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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