The Spillover Effect of Constituency Statutes Along Supply Chains : Evidence From Supplier Commitment

Dichu BAO, Ruirui FANG*, Lixin (Nancy) SU

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

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.
Original languageEnglish
Article number101347
JournalJournal of Financial Stability
Volume75
Early online date1 Nov 2024
DOIs
Publication statusPublished - Dec 2024

Bibliographical note

Publisher Copyright:
© 2024 Elsevier B.V.

Funding

We appreciate helpful comments from Sudipto Dasgupta. Dichu Bao acknowledges financial support from the research seed fund from Lingnan University.

Keywords

  • Constituency statutes
  • Corporate social responsibility
  • R&D investment
  • Supplier commitment
  • Supplier-customer relationship

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