The Transfer of Risk Taking Along the Supply Chain

56 Pages Posted: 13 Mar 2018 Last revised: 11 Jun 2021

See all articles by Cuong Nguyen

Cuong Nguyen

University of Huddersfield - Huddersfield Business School

Viet Anh Dang

Alliance Manchester Business School

Tri Nguyen

University of Brighton

Date Written: May 30, 2021

Abstract

We examine two competing predictions regarding the impact of major customer firms’ risk taking on that of their supplier firms. The bargaining power theory holds that when major customers take more risk to enhance their bargaining power and rent extraction ability, suppliers respond by also engaging in more risk taking to improve their bargaining positions. In contrast, the precautionary motive argument suggests that suppliers that rely heavily on major customers should reduce their risk exposure when these customers engage in excessive risk taking. We find robust evidence in support of the first prediction that suppliers’ risk taking is positively influenced by that of their major customers. The risk-taking link along the supply chain becomes more pronounced when the two parties have more comparable bargaining positions and when suppliers have greater risk-taking capacities. Overall, our study shows that major customers’ risk-taking behaviors can help predict those of their suppliers.

Keywords: Risk taking, customer-supplier relationships, supply chain, bargaining power

JEL Classification: G30, G32, L14

Suggested Citation

Nguyen, Cuong and Dang, Viet Anh and Nguyen, Tri, The Transfer of Risk Taking Along the Supply Chain (May 30, 2021). Available at SSRN: https://ssrn.com/abstract=3139547 or http://dx.doi.org/10.2139/ssrn.3139547

Cuong Nguyen

University of Huddersfield - Huddersfield Business School ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

Viet Anh Dang (Contact Author)

Alliance Manchester Business School ( email )

AMBS Crawford House
Booth Street West
Manchester, Greater Manchester M15 6PB
United Kingdom
+44(0)16127 50438 (Phone)

Tri Nguyen

University of Brighton ( email )

Mithras House
Lewes Road
Brighton, BN2 4AT
United Kingdom

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