Inter-Firm Transfer of Environmental Disclosure in Global Supply Chains

Abstract

This study investigates the inter-firm transfer of environmental disclosure, a voluntary corporate sustainable practice that improves transparency in global supply chains. Building on the liability of foreignness and organizational learning frameworks, we propose that the strength of the association between the multinational enterprise’s (MNE’s), i.e. buyer’s, disclosure and its foreign supplier’s environmental disclosures is systematically weakened by the cultural, administrative, geographic, and economic distances between the home countries of the firms involved, as these cross-country distances hamper the ability of buyers to efficiently share knowledge and to credibly lead by example. We also postulate that the buyer’s prior supply chain experience in the supplier’s country strengthens the association between buyer’s disclosure and supplier’s disclosure, because previous experience helps buyers to improve their ability to share their expertise and leverage their credibility. By assembling a unique panel dataset of 17,540 cross-border buyer-supplier relationships gathered from Bloomberg databases, we find evidence for the influence of different forms of cross-country distances and the buyer’s prior supply chain experience on the association between the environmental disclosures of buyers and those of their foreign suppliers. Our study contributes to literatures on corporate sustainability, international business, and supply chain management by extending the liability of foreignness concept to global supply chains, demonstrating the important role of supply chains in the inter-firm transfer of corporate sustainability practices.