Its your responsibility: the impact of supply chain CSR performance on firm value

Firms are increasingly being held accountable for the unsustainable actions of their suppliers. Stakeholders, regulatory agencies, and customers alike are calling for increased levels of transparency and higher standards of corporate social responsibility (CSR) performance for suppliers. While it is apparent that supplier performance is important, it remains unclear how the stock market weighs the CSR performance of a supplier relative to that of a focal firm. This dissertation focuses on whether these relative differences exist. In addition to capturing the magnitude of the difference in market impact between focal firm and supplier CSR events; I analyze the ways in which these differences have changed over time. To capture this evolution, CSR events ranging over a period from 1994 to 2013 are examined. This research utilizes an event study methodology in which the announcement of over 2,300 CSR events are identified and analyzed to determine the subsequent stock market reaction. I find that while the market evaluated negative supplier CSR events less harshly than events occurring at the buying firm in the early years of the sample, by the turn of the millennium this “supplier discounting" had disappeared. The analysis is broken down by CSR event "type". Findings demonstrate that negative CSR events, particularly those revolving around worker or customer safety, generate the most significant abnormal return. The findings of this dissertation produce valuable managerial insights along with interpretation. Resources are scarce, and understanding where a firm might best allocate their resources to avoid financial penalties will be valuable information for corporate decision makers. These findings present clear evidence that some of these resources should be allocated to supplier CSR performance, not just towards the CSR performance of the focal firm.