Do Strong Stakeholders Keep Firms Out of Wrongdoing? Evidence From Major Customer Relationships

62 Pages Posted: 6 Jan 2021 Last revised: 20 Apr 2021

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

Date Written: February 7, 2021

Abstract

We examine whether economic links with major 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 face lower penalties. These findings hold with numerous robustness checks and different attempts to mitigate endogeneity concerns. Consistent with a risk management motive of customers, we find that the negative effect of customer concentration on misconduct is more pronounced when perceived supplier misconduct risk is higher, and that firms with major customers don’t do more corporate goodness. Exploring underlying economic mechanisms, we find that firms with major customers exhibit improved worker safety, more employee-friendly workplace practices, and less aggressive financial and investment policies. We also provide suggestive evidence that major customers discipline supplier misconduct through both external influence and internal control.

Keywords: Misconduct, supply chain risk, customer, stakeholder

JEL Classification: G32, G39

Suggested Citation

Chen, Jie and Su, Xunhua and Tian, Xuan and Xu, Bin, Do Strong Stakeholders Keep Firms Out of Wrongdoing? Evidence From Major Customer Relationships (February 7, 2021). 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 (Contact Author)

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

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