Buyers as stakeholders: How relationships affect suppliers' financial constraints

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.