Financially distressed suppliers: exit, neglect, voice or loyalty?

Abstract

PurposeMajor crises such as the global financial crisis 2007–08 or the COVID-19 crisis increase the level and likelihood of supplier financial distress. This research expands the understanding of how cooperatively, respectively, uncooperatively buying firms might respond to suppliers who suffer from financial distress in the course of major crises.Design/methodology/approachThe authors build on a collaborative project with a German automotive OEM, analyze OEM internal “financial quick check data”, questionnaire data and longitudinal supplier financial data and apply regression, mediation and difference-in-difference estimation analyses.FindingsThe results show that the stronger the dependence on the distressed supplier, the more cooperative the buying firm's response. Furthermore, a more cooperative response of the buying firm has a strong positive influence on the suppliers' financial performance and hence recovery from the distress situation. Insights from supplier financial distress in the course of the financial crisis 2007–2008 can serve as learnings for the COVID-19 crisis.Research limitations/implicationsThe study fills a gap in the scholarly literature on “response to risk incidents” and response formation. Resource dependence theory and resource dependence dynamics offer a strong rationale for the type of response buying firms are likely to choose.Practical implicationsBesides offering the first menu of response options, this study can help practitioners in figuring out the most appropriate response to distressed suppliers. The findings can assist buying firms in their decisions how to deal with suppliers during major economic and financial crises.Originality/valueThis research is the first to conceptualize buying firms' response options to financially distressed suppliers, to investigate the influence of dependence on buying firm's response and to reveal the consequences of the buying firm's response for the supplier's financial recovery.