Transparency in the Supply Chain: Do Firms Benefit By Disclosing Supplier Monitoring Activities?

Abstract

Firms pressured to increase supply chain transparency often disclose information about their supplier monitoring activities (SMA), including both first-tier and lower-tier suppliers. To evaluate the net benefit of SMA, it is critical to not only consider the potential of such activities to reduce risk and associated costs but also the effects on drivers of revenues that accrue from SMA disclosures. We examine the effect of firms’ SMA disclosures on consumer evaluations and firm value through two studies: First, a behavioral study with two experiments examines the effects of SMA disclosure and monitoring depth disclosure on consumer evaluations. Second, an archival study based on a content analysis of published CSR reports investigates the effect of firms’ SMA communications on firm value. The results from our multi-method research reveal that (1) SMA disclosure increases individual-level consumer evaluations and organizational-level firm value, and (2) disclosure of SMA at a greater depth—including lower-tier suppliers—provides additional benefits at both the individual and firm levels. A supplemental analysis of Twitter data reveals that SMA disclosure also has an effect on aggregate consumer sentiment. Our findings are statistically significant and economically meaningful: In the archival study, we find that firm value, measured in terms of Tobin’s Q, is between 7.7% and 8.5% greater when firms disclose their SMA and explicitly communicate that these efforts extend to both first-tier and lower-tier suppliers, all else equal. We contribute to the literatures on CSR, supply chain transparency, and to the sustainable supplier management literature by empirically examining the effects of SMA and SMA depth on drivers of firm revenues.