Proactive Suppliers: Negative Environmental & Social-Related Media Coverage and Strategic Responses in Supply Chains

This study investigates whether and how Chinese suppliers protect their customers from spillovers of environmental & social (ES) risks in supply chains. We find that suppliers respond strategically to negative media coverage of ES practices by withholding the disclosure of their major customers’ identities and extending more trade credit. The channel tests show that suppliers’ strategic responses are driven by the salience of spillovers of media exposure and the economic importance of customer-supplier relationships. We also find suppliers use these strategies particularly when fewer of their industry peers receive negative ES-related news reports. In addition, suppliers calibrate their responses based on the attenuation of media exposure over time. Finally, we observe that suppliers engaging in these strategic responses experience a smaller decline in subsequent sales growth. Overall, our findings suggest that suppliers are proactive in stabilizing supply chains under the threat of ES risk spillovers. JEL: D2 Q56 G32 M41