Green Image in Supply Chains: Selective Disclosure of Green Suppliers

Abstract

Perception regarding a customer firm's green image depends not only on itself but also on its known suppliers. This paper provides the first empirical evidence linking the supplier's environmental performance and supply chain information disclosure. Specifically, we uncover robust evidence showing that customer firms voluntarily disclose relationships with environmentally responsible ("good") suppliers while selectively not disclosing relationships with "bad" suppliers. An instrumental variable approach using temperature volatility worldwide supports a causal interpretation of our finding. Such corporate behavior increases with growing public awareness of climate change and decreases with strengthened regulations on environmental information transparency. This observation is more salient for firms that face greater competition or care more about their brand awareness and for firms that have more significant holdings by institutional investors. Firms that selectively disclose "green" suppliers experience increases in sales and valuation, suggesting that product consumers and financial markets do not fully take this behavior into account.

Keywords: supply chain management, selective disclosure, corporate social responsibility, green image

JEL Classification: F30, F36, G28, G30, G38, G34, M14, Q50