The limits of local laws in global supply chains: Extending governance or cutting ties?

Michael Koetter, Melina Ludolph, Hendrik Schub and Fabian Wöbbeking

No 14/2025, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We exploit an information shock related to the German Supply Chain Due Diligence Act and use detailed customs data to analyze how smaller, non-listed firms respond when expecting accountability for externalities beyond their organizational boundaries. Product-level regressions reveal a substantial reduction in imports from high ESG-risk production sectors. Adjustments occur mainly at the extensive margin, indicating that firms cut ties with high-risk suppliers. The product-level results translate into meaningful changes in overall international procurement for firms with Big Four auditors. Our findings suggest potential limits to mandates requiring firms to integrate broad sustainability considerations into operational decisions.

Keywords: due diligence; firm boundaries; governance; responsible sourcing; supply chain (search for similar items in EconPapers)
JEL-codes: F14 F18 G38 M48 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-eur, nep-iaf and nep-inv
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:325497

DOI: 10.18717/dph80a-7k35

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