We empirically examine the effect of customers’ social capital on the financial performance of suppliers. Social capital, as captured by the strength of secular norms and the density of social networks in local geographical regions, reflects social influences surrounding corporate headquarters. Because customers’ social capital could constrain their opportunistic behaviors and improve supply chain collaboration through its influence on managers’ moral values and external monitoring, we hypothesize and find a positive association between customer social capital and supplier profitability. The association is more pronounced when customers reside closer to suppliers, have more short-horizon incentives, and possess stronger bargaining power. Collectively, our findings suggest that social capital arising from institutions in local areas may mitigate customer opportunism and highlight its real effects that spill over to suppliers’ operational performance.
AlmJClarkJLeibelK (2011) Socio-economic Diversity, Social Capital, and Tax Filing Compliance in the United States. St. Louis: Federal Reserve Bank of St Louis.
2.
AnupindiRBassokY (1999) Supply contracts with quantity commitments and stochastic demand. In: Quantitative Models for Supply Chain Management. Boston, MA: Springer, pp.197–232.
3.
BiddleGCHilaryGVerdiRS (2009) How does financial reporting quality relate to investment efficiency?Journal of Accounting and Economics48(2–3): 112–131.
4.
BloomNBondSVan ReenenJ (2007) Uncertainty and investment dynamics. The Review of Economic Studies74(2): 391–415.
5.
BuonannoPMontolioDVaninP (2009) Does social capital reduce crime?The Journal of Law and Economics52(1): 145–170.
6.
BusheeBJ (1998) The influence of institutional investors on myopic R&D investment behavior. The Accounting Review73(3): 305–333.
7.
CachonGP (2003) Supply chain coordination with contracts. Handbooks in Operations Research and Management Science11: 227–339.
8.
ChangHLiuSMashruwalaR (2022) Customer bargaining power, strategic fit, and supplier performance. Production and Operations Management31(4): 1492–1509.
9.
ChaseCW Jr (1998) The role of the demand planner in supply chain management. The Journal of Business Forecasting17(3): 2.
10.
ChenFDreznerZRyanJK, et al. (2000) Quantifying the bullwhip effect in a simple supply chain: The impact of forecasting, lead times, and information. Management Science46(3): 436–443.
11.
ChengCSAWangJZhangN, et al. (2017) Bowling alone, bowling together: Is social capital priced in bank loans?Journal of Accounting, Auditing & Finance32(4): 449–479.
12.
ChoiJKimJQiuAA, et al. (2012) Geographic proximity between auditor and client: How does it impact audit quality. Auding: A Journal of Practice & Theory31(2): 43–72.
13.
CohenDALiB (2020) Customer-base concentration, investment, and profitability: The US government as a major customer. The Accounting Review95(1): 101–131.
14.
ColemanJS (1988) Social capital in the creation of human capital. American Journal of Sociology94: 95–120.
15.
ColemanJS (1994) Foundations of Social Theory. Cambridge, MA: Harvard University Press.
16.
CorbettCJTangCS (1999) Designing supply contracts: Contract type and information asymmetry. In: Quantitative Models for Supply Chain Management. Boston, MA: Springer, 269.
17.
DemerjianPLevBMcVayS (2012) Quantifying managerial ability: A new measure and validity tests. Management Science58(7): 1229–1248.
18.
DhaliwalDJuddJSSerflingM, et al. (2016) Customer concentration risk and the cost of equity capital. Journal of Accounting and Economics61(1): 23–48.
19.
DohJPHowtonSDHowtonSW, et al. (2010) Does the market respond to an endorsement of social responsibility? The role of institutions, information, and legitmacy. Journal of Management36(6): 1461–1485.
20.
DolanRJ (1987) Quantity discounts: Managerial issues and research opportunities. Marketing Science6(1): 1–22.
21.
DyerJHSinghH (1998) The relational view: Cooperative strategy and sources of interorganizational competitive advantage. The Academy of Management Review23(4): 660–679.
22.
DyrengSMayewWWillamsC (2012) Religious social norms and corporate financial reporting. Journal of Business Finance and Accounting39(7–8): 845–875.
23.
ElsterJ (1989) Social norms and economic theory. Journal of Economics Perspectives3(4): 99–117.
24.
FischerHMPollockTG (2004) Effects of social capital and power on surviving transformational change: The case of initial public offerings. Academy of Management Journal47(4): 463–481.
25.
FisherMLRamanAMcClellandAS (1994) Rocket science retailing is almost here: Are you ready?Harvard Business Review72(3): 83–93.
26.
FukuyamaF (1995) Social capital and the global economy. Foreign Affairs74: 89–104.
27.
FukuyamaF (1997) Social capital and the modern capitalist economy: Creating a high trust workplace. Stern Business Magazine4: 4–17.
28.
FunkP (2010) Social incentives and voter turnout: Evidence from the Swiss mail ballot system. Journal of the European Economic Association8(5): 1077–1103.
29.
GuisoLSapienzaPZingalesL (2004) The role of social capital in financial development. American Economic Review94(3): 526–556.
30.
GuisoLSapienzaPZingalesL (2008) Social capital as good culture. Journal of the European Economic Association6(2–3): 295–320.
31.
GuisoLSapienzaPZingalesL (2015) The value of corporate culture. Journal of Financial Economics117(1): 60–76.
32.
HambrickDC (2007) Upper echelons theory: An update. Academy of Management Review32(2): 334–343.
33.
HambrickDCMasonPA (1984) Upper echelons: The organization as a reflection of its top managers. Academy of Management Review9(2): 193–206.
34.
HasanIHoiCKWuQ, et al. (2017a) Does social capital matter in corporate decisions? Evidence from corporate tax avoidance. Journal of Accounting Research55(3): 629–668.
35.
HasanIHoiCKWuQ, et al. (2017b) Social capital and debt contracting: Evidence from bank loans and public bonds. Journal of Financial and Quantitative Analysis52(3): 1017–1047.
36.
HasanIHoiCWuQ, et al. (2020) Is social capital associated with corporate innovation? Evidence from publicly listed firms in the U.S. Journal of Corporate Finance62: 101623.
37.
HigginsET (1987) Self-discrepancy: A theory relating self and affect. Psychological Review94(3): 319–340.
38.
HilaryGHuiKW (2009) Does religion matter in corporate decision making in America?Journal of Financial Economics93(3): 455–473.
39.
HoiCKWuQZhangH (2018) Community social capital and corporate social responsibility. Journal of Business Ethics152(3): 647–665.
40.
HoiCKWuQZhangH (2019) Does social capital mitigate agency problems? Evidence from chief executive officer (CEO) compensation. Journal of Financial Economics133(2): 498–519.
41.
HuiKWKlasaSYeungPE (2012) Corporate suppliers and customers and accounting conservatism. Journal of Accounting and Economics53: 115–135.
42.
HuiKWLiangCYeungPE (2019) The effect of major customer concentration on firm profitability: Competitive or collaborative?Review of Accounting Studies24(1): 189–229.
43.
IrvinePJParkSSYildizhanC (2016) Customer-base concentration, profitability, and the relationship life cycle. The Accounting Review91(3): 883–906.
44.
JhaA (2019) Financial reports and social capital. Journal of Business Ethics155: 567–596.
45.
JhaAChenY (2015) Audit fees and social capital. The Accounting Review90(2): 611–639.
46.
JhaACoxJ (2015) Corporate social responsibility and social capital. Journal of Banking and Finance60: 252–270.
47.
KalwaniMUNarayandasN (1995) Long-term manufacturer-supplier relationships: Do they pay off for supplier firms?Journal of Marketing59(1): 1–16.
48.
KnackS (1992) Civic norms, social sanctions, and voter turnout. Rationality and Society4(2): 133–156.
49.
KnackSKeeferP (1997) Does social capital have an economic payoff? A cross-country investigation. The Quarterly Journal of Economics112(4): 1251–1288.
50.
LangeDLeePMDaiY (2011) Organization reputation: A review. Journal of Management37(1): 153–184.
51.
LaursenKMasciarelliFPrencipeA (2012) Regions matter: How localized social capital affects innovation and external knowledge acquisition. Organization Science23(1): 177–193.
52.
LaviviereMA (1999) Supply chain contracting and coordination with stochastic demand. In: Quantitative Models for Supply Chain Management. Boston, MA: Springer, pp.233–268.
53.
LeeHLPadmanabhanVWhangS (1997) Information distortion in supply chain: The bullwhip effect. Management Science43(4): 546–558.
54.
LeeHLWhangS (2000) Information sharing in a supply chain. International Journal of Manufacturing Technology and Management1(1): 79–93.
55.
LiXWangQ (2007) Coordination mechanisms of supply chain systems. European Journal of Operational Research179(1): 1–16.
56.
MallapragadaGGuptaAJosephsonB (2022) The impact of social capital and transaction efficacy on salesperson performance. Production and Operations Management31(9): 3525–3542.
57.
MinSRoathASDaughertyPJ, et al. (2005) Supply chain collaboration: What’s happening?The International Journal of Logistics Management16(2): 237–256.
58.
ÖzerÖWeiW (2006) Strategic commitments for an optimal capacity decision under asymmetric forecast information. Management Science52(8): 1238–1257.
59.
ÖzerÖZhengYChenKY (2011) Trust in forecast information sharing. Management Science57(6): 1111–1137.
60.
PatatoukasPN (2012) Customer-base concentration: Implications for firm performance and capital markets: 2011 American accounting association competitive manuscript award winner. The Accounting Review87(2): 363–392.
61.
PayneGTMooreCBGriffisSE, et al. (2011) Multilevel challenges and opportunities in social capital research. Journal of Management37(2): 491–520.
62.
PortesA (1998) Social capital: Its origins and applications in modern sociology. Annual Review of Sociology24(1): 1–24.
63.
PosnerEA (2000) Law and Social Norms. Cambridge, MA: Harvard University Press.
64.
PutnamRD (1993) The prosperous community. The American Pospect4(13): 35–42.
65.
PutnamRD (1995) Tuning in, tuning out: The strange disappearance of social capital in America. PS: Political Science & Politics28(4): 664–683.
66.
PutnamRD (2000) Bowling alone: America’s declining social capital. In: Culture and Politics. New York: Palgrave Macmillan, pp.223–234.
67.
PutnamRD (2001) Social capital: Measurement and consequences. Canadian Journal of Policy Research2: 41–51.
68.
RadhakrishnanSWangZZhangY (2014) Customers’ capital market information quality and suppliers’ performance. Production and Operations Management23(10): 1690–1705.
69.
RamanKShahrurH (2008) Relationship-specific investments and earnings management: Evidence on corporate suppliers and customers. The Accounting Review83(4): 1041–1081.
70.
RupasinghaAGoetzSJ (2008) US county-level Social Capital Data, 1990–2005. University Park, PA: The Northeast Regional Center for Rural Development, The Pennsylvania State University.
71.
RupasinghaAGoetzSJFreshwaterD (2006) The production of social capital in US counties. The Journal of Socio-Economics35(1): 83–101.
72.
SimatupangTMSridharanR (2005) An integrative framework for supply chain collaboration. The International Journal of Logistics Management16(2): 257–274.
73.
SpagnoloG (1999) Social relations and cooperation in organizations. Journal of Economic Behavior and Organization38(1): 1–25.
74.
UhlanerCJ (1989) Rational turnout: The neglected role of groups. American Journal of Political Science33(2): 390–422.
75.
VillenaVHCraigheadCW (2017) On the same page? How asymmetric buyer–supplier relationships affect opportunism and performance. Production and Operations Management26(3): 491–508.
76.
WhiteleyPF (2000) Economic growth and social capital. Political Studies48(3): 443–466.
77.
WilliamsonOE (1979) Transaction-cost economics: The governance of contractual relations. The Journal of Law and Economics22(2): 233–261.
78.
WoolcockM (2001) The place of social capital in understanding social and economic outcomes. Canadian Journal of Policy Research2(1): 11–17.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
