Implications of Customer-Supplier Relationships on Corporate Governance

55 Pages Posted: 8 Aug 2015

See all articles by Hsihui Chang

Hsihui Chang

Drexel University

Jengfang Chen

Macquarie University

Natalya V. Khimich

Drexel University

Guan-Syun Wu

Chung Yuan Christian University

Date Written: August 6, 2015

Abstract

Supporting stakeholder theory we demonstrate that a firm’s major customers and suppliers influence its corporate governance. We document a negative contemporaneous association between corporate governance G-index and the presence of major customers and suppliers. Consistent with the causal link between major stakeholders and firm’s governance, we find that obtainment of new business partners predicts future improvements in firm’s governance. We demonstrate that business partners are more likely to employ board interlocks when the agency problem of customer-supplier relationships is more severe. We observe that relationships between partners last longer if they have strong governance and/or board interlocks.

Keywords: corporate governance; customers; suppliers; relationship-specific investments; stakeholder theory

JEL Classification: G30, M40, M41

Suggested Citation

Chang, Hsihui and Chen, Jengfang and Khimich, Natalya V. and Wu, Guan-Syun, Implications of Customer-Supplier Relationships on Corporate Governance (August 6, 2015). Available at SSRN: https://ssrn.com/abstract=2640674 or http://dx.doi.org/10.2139/ssrn.2640674

Hsihui Chang

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Jengfang Chen

Macquarie University ( email )

Natalya V. Khimich (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Guan-Syun Wu

Chung Yuan Christian University ( email )

22 Pu-Jen, Pu-chung Li
Chung-Li, 32023
Taiwan

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