The Disciplinary Role of Major Corporate Customers

46 Pages Posted: 6 Jan 2021 Last revised: 21 Mar 2024

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

National University of Singapore; Cornell University

Date Written: March 15, 2024

Abstract

We examine whether major corporate customers can help deter corporate misconduct among their suppliers. Our findings indicate that, in equilibrium, firms with concentrated customer bases are less likely to commit misconduct, and they pay lower penalties. Using an event study based on the establishment of trade relationships, we show that this negative equilibrium relation reflects both bonding by the suppliers and monitoring by the major customers. Furthermore, the disciplinary effect of major customers is more pronounced when customer demand for reducing supplier misconduct risk is higher. Additional analyses reveal that firms with major customers demonstrate better ESG practices that promote supply-chain sustainability and that major customers exercise their exit option to penalize suppliers after acute violations. Overall, our results suggest that major customers do discipline suppliers.

Keywords: Corporate misconduct, major customer, supplier misconduct risk, ESG, sustainability.

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 (March 15, 2024). 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)

National University of Singapore ( email )

Cornell University ( email )

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