The spillover effect of constituency statutes along supply chains: Evidence from supplier commitment

Dichu Bao, Ruirui Fang and Su, Lixin (Nancy)

Journal of Financial Stability, 2024, vol. 75, issue C

Abstract: This study examines the spillover effect of constituency statutes along the supply chain. We posit that the enactment of constituency statutes in customer firms’ incorporation states, by removing legal obstacles for customer firms to cater to non-shareholders’ interests, builds suppliers’ trust and cooperation. Consistent with the notion that constituency statutes entice greater trust from suppliers, we find that suppliers make more relationship-specific investments in the supply chain after the enactment of constituency statutes in customers’ states, indicating a greater commitment to the customer. We also show an improvement in customers’ corporate social responsibility performance in the post-constituency-statute period, thus substantiating the claim that the constituency statutes increase customers’ stakeholder orientation. Cross-sectionally, we find the positive effect of constituency statutes on supplier relationship-specific investments is attenuated if the customer and supplier have more repeated interactions in the past, whereas the effect is more pronounced if suppliers produce durable goods. Overall, we provide novel evidence on the spillover of constituency statutes along the supply chain.

Keywords: Constituency statutes; Corporate social responsibility; Supplier commitment; Supplier-customer relationship; R&D investment (search for similar items in EconPapers)
JEL-codes: G31 L14 O32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:75:y:2024:i:c:s1572308924001323

DOI: 10.1016/j.jfs.2024.101347

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