Environmental risk and buyer-supplier relationships

Banerjee, Shantanu and Chang, Simba and Fu, Kangkang and Wong, George (2014) Environmental risk and buyer-supplier relationships. Working Paper. UNSPECIFIED. (Unpublished)

Abstract

We provide empirical evidence on the adverse effects of supplier firms’ environmental risk exposure on their relationship with principal customers. We document that supplier firms with high environmental risk are less likely to have principal customers. From principal customers’ perspective, a higher level of environmental risk lowers a supplier firm’s probability of being chosen relative to its industry peers by its potential customer. Conditional on an ongoing relationship with principal customers, supplier firms with high environmental risk have lower sales to principal customers and shorter relationship durations. These results are more pronounced when customers’ environmental risk is low. Collectively, our findings suggest an important channel through which firms can benefit from being environmentally responsible.