Voluntary agreements for sustainability, resource efficiency & firm performance under the supply chain cooperation policy in South Korea

Abstract

This study analyzes the economic consequences of Korean firms' strategic decision to participate in government policy that is designed to foster social sustainability and cooperation across supply chains in 2011–2016. Specifically, it investigates whether Korean firms’ decision to participate in supply chain cooperation policy is associated with firm performance, in terms of return on assets (ROA) and return on investment (ROI), alongside its marketing, production and inventory resource efficiencies. The study contributes to empirical research on social sustainability in supply chains and instrumental stakeholder theory. Within a potential-outcomes framework, an endogenous treatment effects model is adopted to address the endogenous treatment in the decision to participate, and unobservable firm characteristics. The study provides evidence in support of instrumental stakeholder theory. The results confirm that unobserved characteristics of the firm impact the selection decision and firm performance. After correcting for endogeneity, the results show that the effect of participation is positive and statistically significant. But this positive relationship is contingent on the extent to which firms are resource efficient. Inventory resource efficiency is found to have a negative moderation effect on the relationship between policy participation and firm performance. Hence the more efficient a firm is in inventory and associated operational efficiencies, the lesser the benefits realized from policy participation. However, production and marketing resource efficiencies are not found to have significant effect as moderating variables.