The economic consequences of interdependent relationships with suppliers and customers have long been of interest to supply chain managers and academics alike. Whereas previous studies have focused on the benefits or risks of embedded relationships that accrue to buying firms, this study simultaneously investigates the effects of a supplier's and a customer's embeddedness, arising from resource dependency, on a focal firm's financial performance in triadic supply chain relationships. Using 1,144 unique focal firm-years for U.S. firms from Compustat, we find that a supplier's and a customer's dependency both increase the focal firm's performance in terms of return on assets (ROA) and return on sales (ROS) by increasing asset turnover (ATO). As levels of supplier and customer dependency on the focal firm increase, however, the economic benefits of customer dependency diminish beyond a certain point, while those of supplier dependency continue to increase above that threshold. Thus, our findings show the paradoxically differing risks of the supplier's versus the customer's dependency, while establishing the unequivocal economic benefits of supplier and customer relations for focal firms in the middle of concentrated triadic relationships.

Internal controls influence information quality, thus affecting the ability of supply chain partners, who rely on collaborative systems of information sharing, to reliably contract. Using SOX-related internal control assessments as a proxy for internal control quality and U.S. GAAP-mandated major customer disclosures, we find that supplier internal control quality influences supply chain relationship duration. Specifically, our evidence demonstrates that: (1) poor internal control quality increases the likelihood of subsequent customer-supplier relationship termination; (2) timely control weakness remediation attenuates termination likelihood; and (3) weaknesses affecting customer contracting drive the effect of internal control quality on relationship termination. Our results control for supplier operational quality and performance, and are robust to propensity score matching techniques, controls for reverse causality, and alternative proxies for relationship termination and internal control quality. Overall, our findings are consistent with customers viewing strong supplier controls as important, albeit overlooked, contracting elements with significant implications for supply chain relationships.

No abstract

No abstract

No abstract