Buyer–Supplier Relationships and the Stakeholder Theory of Capital Structure





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    • Banerjee is at the Accounting and Finance Department, Lancaster University. Dasgupta is at the Department of Finance, Hong Kong University of Science and Technology. Kim is at the Department of Economics and Finance, Hanyang University. We thank an anonymous referee for comments that greatly improved the paper. We also thank Vidhan Goyal, Michael Lemmon, and Sheridan Titman and seminar participants at HKUST, University of Lancaster, and University of Sydney for helpful comments. Dasgupta acknowledges financial support from Hong Kong's Research Grants Council under grant number HKUST6232/03H. All errors are the authors' responsibility only.


Firms in bilateral relationships are likely to produce or procure unique products—especially when they are in durable goods industries. Consistent with the arguments of Titman and Titman and Wessels, such firms are likely to maintain lower leverage. We compile a database of firms' principal customers (those that account for at least 10% of sales or are otherwise considered important for business) from the Business Information File of Compustat and find results consistent with the predictions of this theory.