Do Firms Spend More on Suppliers That Have Environmental Expertise? An Empirical Study of U.S. Manufacturers’ Procurement Spend

Abstract

Stakeholders expect focal firms to improve their environmental performance. While firms may be able to accumulate the environmental expertise needed to achieve this goal internally, doing so may require significant time and resource commitments. Alternatively, buyer firms can leverage their suppliers’ existing environmental expertise and gain access to such expertise when they purchase products and services from these suppliers. The purpose of this study was to develop and test theory regarding under what conditions suppliers’ environmental expertise influences a buying firms’ procurement spend with these suppliers. We ground our study in transaction cost economics and agency theories and empirically test our hypotheses using a unique buyer–supplier dyadic data set. We find that buyer firms are willing to increase their overall business spend with suppliers that have strong environmental expertise, particularly when the buyer firms are more profitable and have higher levels of absorptive capacity. However, we find the opposite effect when the buyer firm’s executive compensation is linked to the firm’s environmental, social, and governance (ESG) performance. Likewise, we also find that the buyer firm’s environmental concern ratings negatively moderate the relationship between the supplier’s environmental expertise and the buyer’s procurement spend with the supplier.

The impact of supplier innovation on buyer innovation and the moderating effects of geographic distance, financial interdependence and technical similarity

“…Bellamy et al. , 2014; Mukandwal et al. , 2020) and required us to account for this significant delay when conducting our analysis.…”

“…Innovation is a critical resource for most modern enterprises, yet there is substantial risk involved with innovation projects due to long-time horizons, significant research and development costs, concerns about opportunistic behavior and the indeterminate financial outcomes associated with these efforts (Mukandwal et al. , 2020).…”

Freedom of Association and Collective Bargaining in Global Supply Chains: A Research Agenda

“…Answers to why FOA rights do not improve have their root in the sourcing strategies of companies. SCM researchers have examined sourcing generally (e.g., Tsay, Gray, Noh, & Mahoney, 2018) and supplier selection generally (e.g., Ramanathan, 2007; Wu, Shunk, Blackhurst & Appalla, 2007), and even supplier selection from an environmental management perspective (Mukandwal et al, 2020), but have not evaluated sourcing strategy from a labor rights perspective. There are several important and inter‐related questions here.…”

Benefits and challenges of developing an eco-social orientation: implications for marketing practice

“…These decisions should be made not just in the boardroom but in the interview room and in selecting partnerships. Managers are increasingly looking toward cultural fit when making hiring decisions (Rivera, 2012) and supplier selection (Mukandwal et al, 2020), so perhaps decisions about the human and partnering makeup of the organization will help align firm goals. While knowledge and skills will always be important, firms may wish to gauge environmental and social concerns among potential employees and partners.…”