The Disciplinary Role of Major Corporate Customers

58 Pages Posted: 6 Jan 2021 Last revised: 14 Feb 2022

See all articles by Jie Chen

Jie Chen

Leeds University Business School, University of Leeds

Xunhua Su

Norwegian School of Economics (NHH)

Xuan Tian

Tsinghua University - PBC School of Finance

Bin Xu

University of Leeds

Luo Zuo

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: February 14, 2022

Abstract

We examine whether economic links with major corporate customers, an important group of strong stakeholders, act as a deterrent to corporate misconduct. We show that firms with a concentrated customer base are less likely to commit misconduct, and they pay lower penalties. Moreover, we show that this disciplinary effect is stronger in the presence of events that increase customer bargaining power, intensify customer scrutiny, or arouse customer awareness of supplier misconduct risk. Consistent with a risk-management motive on the part of customers, we find that the negative effect of customer concentration on misconduct is more pronounced when perceived supplier misconduct risk is higher, but firms with major customers do not appear to engage in more corporate goodness. Exploring underlying economic mechanisms, we find that firms with major customers exhibit better worker safety and more employee-friendly workplace practices. We also provide suggestive evidence that major customers curb supplier misconduct through both external influence and internal control. Overall, our evidence suggests that major corporate customers can effectively discipline managerial behavior.

Keywords: Corporate misconduct, customer, supplier, stakeholder, risk management.

JEL Classification: M40, M41, G32, L14.

Suggested Citation

Chen, Jie and Su, Xunhua and Tian, Xuan and Xu, Bin and Zuo, Luo, The Disciplinary Role of Major Corporate Customers (February 14, 2022). Available at SSRN: https://ssrn.com/abstract=3588351 or http://dx.doi.org/10.2139/ssrn.3588351

Jie Chen

Leeds University Business School, University of Leeds ( email )

Leeds LS2 9JT
United Kingdom

HOME PAGE: http://https://business.leeds.ac.uk/about-us/our-people/staff-directory/profile/jie-chen-1/

Xunhua Su

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://sites.google.com/site/xunhuasu/

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Bin Xu

University of Leeds ( email )

Leeds
United Kingdom

Luo Zuo (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

349 Sage Hall
Ithaca, NY 14853
United States
607-255-4002 (Phone)

HOME PAGE: http://www.johnson.cornell.edu/faculty-research/faculty/lz352/

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