Effect of supplier cost stickiness on environmental, social, and governance: Moderating role of customer bargaining power

Abstract

Firms with high selling, general, and administrative (SG&A) cost stickiness may maintain environmental, social, and governance (ESG) performance, and customer firms that account for a large proportion of supplier firms' sales (main customers) have considerable bargaining power regarding sales terms. In this study, we examine the effect of SG&A cost stickiness of supplier firms on their ESG performance. We further examine the moderating effect of a customer's bargaining power on the relationship between cost stickiness and ESG performance. The findings reveal that supplier firms with high cost stickiness have higher ESG performance, whereas supplier firms with main customers have lower ESG investments. The influence of main customer firms mitigates the positive relationship between the SG&A cost stickiness and ESG investment of supplier firms. In additional analysis, we obtain consistent conclusions for large firms and firms with high production efficiency.