The Impact of Supplier Sustainability Risk on Shareholder Value

Abstract

Business scandals like sweatshop labor have received growing attention in the field of supply management. Yet little is known about how detrimental such scandals are to buying firms. This study aims to fill this gap by examining the magnitude of the consequences of what are termed as supplier sustainability risks (SSRs). To this end, we conduct an event study analysis followed by regression modeling based on a sample of 196 U.S. publicly traded firms’ SSRs. The results reveal that SSRs are associated with a 1.00 percent reduction in shareholder wealth. The market reacts negatively but not differently to the two types of SSR: process‐related risks and product‐related risks. Finally, a firm's moral capital does play a mitigating role for SSRs and process‐related risks; however, it does not provide insurance‐like protection for product‐related risks.

The role of intermediaries in establishing a sustainable supply chain

“…Mismanaging suppliers in a multi-tiered network can damage a firm's operations and reputation (Kim et al, 2019). SSCM may include multi-stakeholder initiatives that can help to manage complex supplier networks where good sustainability behaviour is crucial.…”

“…Sustainable supply chain management (SSCM) is a challenging issue for all actors across the supply chain. The potential influence and negative impact of one supply chain actor on the reputation and performance of other organisations in the chain (Jacobs and Singhal, 2017;Kim et al, 2019), highlights the criticality of establishing SSCM (Hutchins andSutherland, 2008: Hartmann andMoeller, 2014). One of the principal challenges is the ambiguity of the measures and definitions that exist around sustainability dimensions.…”

‘For the English to see’ or effective change? How supply chains are shaped by laws and regulations, and what that means for the exposure of modern slavery

“…However, in the case of modern slavery and related sustainability issues, it is difficult to ascertain the reasons for share price performance. At best we must rely on anecdotal evidence (Kim et al 2019). Nevertheless, while identifying modern slavery in supply chains can be a challenging and laborious task, the issue is often researched from a corporate risk-management and compliance perspective (Hofmann et al 2018).…”

Shareholder Value Effects of Ethical Sourcing: Comparing Reactive and Proactive Initiatives

“…Ensuring social responsibility in supply chains is of great interest to buying firms. Failure to do so can only damage a firm's reputation and shareholder value (Kim et al, 2019). For example, apparel giants such as Nike experienced huge public backlash in the 1990s after they were caught engaging in child labor at supplier facilities (Zadek, 2004).…”

“…In the literature, examining economic effects associated with CSR comes down to two major streams of research: "Main Street" and "Wall Street" (Lamin & Zaheer, 2012). Put simply, the former is about how consumers perceive firms' CSR (e.g., Wagner et al, 2009;Yoon et al, 2006), while the latter is more interested in its investor perception (e.g., Flammer, 2013;Gilley et al, 2000;Kim et al, 2019). Our study focuses on investor behavior towards ESIs, given that one main goal of consumer-based strategies is, after all, to maximize shareholder value.…”