Spillover of bad publicity: Effect of negative ESG coverage in supply chains on firm performance

Li Wang, Yuxiao Ye and Baofeng Huo

International Journal of Production Economics, 2025, vol. 285, issue C

Abstract: In an increasingly open and transparent information environment, negative media coverage of Environmental, Social, and Governance (ESG) misconduct can undermine focal firms' legitimacy and performance. However, we have a limited understanding of how such coverage of supply chain partners spills over to focal firms, particularly in emerging markets. Drawing on the signaling theory, we argue that negative ESG coverage serves as a signal of a focal firm's illegitimacy, and the signal's visibility, clarity, and fit become more significant. Using samples from Chinese listed firms, our results reveal that negative media coverage of supply chain partners' ESG issues significantly reduces focal firms' financial performance. Notably, the magnitude of this effect depends on media reach and framing. Stronger ties between focal firms and their supply chain partners intensify the negative spillover. These findings underscore actively managing supply chain partners' ESG risks to avoid potential financial losses within supply chains. This study has fruitful contributions to the literature on supply chain sustainability and the spillover effect in multi-tier supply chain relationships.

Keywords: Supply chain ESG; Supply chain relationships; Legitimacy spillover; Media coverage; Signaling theory (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:285:y:2025:i:c:s0925527325001392

DOI: 10.1016/j.ijpe.2025.109654

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