Customers’ Risk Tolerance and Suppliers’ Investment Inefficiency

Karel Hrazdil, Jeong-Bon Kim and Xin Li
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Karel Hrazdil: Beedie School of Business, Simon Fraser University, Burnaby, BC V5A 1S6, Canada
Jeong-Bon Kim: College of Business, City University of Hong Kong, Kowloon, Hong Kong 999077, China
Xin Li: Beedie School of Business, Simon Fraser University, Burnaby, BC V5A 1S6, Canada

JRFM, 2022, vol. 15, issue 2, 1-20

Abstract: We examine the effect of the risk tolerance of downstream firms (i.e., customers) on the investment inefficiency of upstream firms (i.e., suppliers). Using the pilot licensing status of the CEOs as a proxy for their inherent risk tolerance, we find that customer firms led by pilot CEOs are associated with suppliers’ investment inefficiency, where investment inefficiency is more pronounced when the suppliers have less bargaining power over their customers. Our dynamic analysis confirms the causative relation between customer risk tolerance and supplier investment inefficiency and suggests that customers’ risk tolerance plays a significant role in shaping suppliers’ relationship-specific investment strategies.

Keywords: risk tolerance; pilot; CEO; customer; supply chain; supplier inefficiency (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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