Disruption of Customers' Political Connections and Suppliers' ESG Performance: Evidence from China

Abstract

This study examines how the severance of political connections in customer firms affects the ESG performance of their upstream suppliers. Using a matched customer-supplier dataset of Chinese listed firms and the 2013 “Regulation 18” as a quasi-natural experiment, we construct a difference-in-differences framework to identify the causal impact. The results show that the severance of customers’ political ties significantly reduces suppliers’ ESG scores, particularly in the environmental and social dimensions. Mechanism analyses suggest that this effect is driven by financial pressure transmission and elevated perceived default risk. Our findings highlight the inter-firm spillover of political events through supply chains and suggest that corporate ESG behavior is not only firm-driven but also relationally shaped.

Keywords: Supply Chain, Political connections, ESG