Implications of Customer-Supplier Relationships on Corporate Governance
55 Pages Posted: 8 Aug 2015
Date Written: August 6, 2015
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: Suggested Citation