Do Major Customers Affect Suppliers' ESG Activities?

Abstract

This study examines whether major customers affect supplier firms' Environmental, Social, and Governance (ESG) activities. We find that companies with higher customer concentration engage in less ESG activities while directing more resources towards other long-term value-enhancing activities. This association is attenuated for suppliers with fewer business segments, customers with higher bankruptcy risk and lower switching costs, and during elevated equity market sentiment periods. We also provide compelling evidence that companies with at least one major customer tend to exhibit a greater propensity to invest in technology and maintain a higher level of intangible assets. Collectively, our findings demonstrate that the composition of suppliers' customer base has a notable adverse effect on their level of engagement in ESG activities.

Keywords: Customer concentration, Principal customer, ESG activities