Moving Beyond the four walls: The evolving impact of supplier sustainability on firm value

Abstract

Stakeholders are increasingly holding firms accountable for the sustainability performance of their suppliers, calling for increased levels of transparency and higher standards of social and environmental sustainability. This research focuses on the effect of supplier sustainability on focal firm value, and whether it differs from the effect of focal firm sustainability. The authors use an event study methodology to investigate 3986 positive and negative environmental and social sustainability event announcements from 1994 to 2013. The results suggest that supplier sustainability performance was not related to focal firm value at the beginning of this time period. However, after the turn of the millennium, the authors find a significant relationship between supplier social sustainability and focal firm value. Notably, focal firm value is not as heavily affected by supplier environmental performance. This long-term multi-faceted comparison provides empirical evidence informing firms on how they can best allocate their monetary and strategic resources to specific categories of supply chain sustainability in a way that maximizes focal firm value.