Follow‐suit or free‐ride? A relational view of CSR diffusion in a supply chain with customer–supplier closure

Abstract

AbstractEmbedded in networks of relationships, firms are who they buy from and sell to. As a result, a firm's corporate social responsibility (CSR) practices can be influenced by CSR practices of its customers and suppliers—known as CSR diffusion. This study examines how CSR diffuses in a supply chain that encompasses a focal firm, its suppliers, and customers. Adopting a relational view, this research hypothesizes that a firm's CSR is influenced by its customer‐base CSR differently than its supply‐base CSR. By analyzing panel data consisting of 1972 firm‐year observations integrated from multiple data sources, the results offer evidence for a positive impact of customer‐base CSR and a negative impact of supply‐base CSR on firm CSR. Interestingly, when customers and suppliers of a focal firm establish direct business connections (i.e., customer–supplier closure), the positive follow‐suit effect of customer‐base CSR is enhanced. In contrast, the negative free‐ride effect of supply‐base CSR is diminished. This suggests that a focal firm is more likely to embrace CSR practices from CSR‐active supply chain partners when embedded in closed triads. This research shows the need to consider the directionality and closure of relationships in understanding the diffusion of voluntary, ill‐defined, costly operational practices within a supply chain.