Supply base financial dependence and environmental performance: a secondary data analysis

This paper presents a secondary data analysis on how power dynamics in the supply base, measured in terms of financial dependence, affect the focal firm environmental performance. Our hypotheses are grounded in the Resource Dependence Theory (RDT). We distinguish between supplier financial dependence on the focal firm and focal firm financial dependence on suppliers. We expect these two dependence directions to influence the focal firm environmental performance. We also consider the influence of two moderating factors reflecting the orientation of the buyer within the broader institutional environment: the stringency of environmental regulations affecting the focal firm and its reputation. We tested our hypotheses on 109 US-based manufacturers and their supply base. While powerful buyers might be expected to enjoy certain advantages, our results show that the greater a focal firm's clout over its supply base (i.e., higher supplier financial dependence on the focal firm), the weaker its environmental performance tends to be. Focal firm financial dependence on suppliers has instead no significant role. We found significant effects for reputation and, only partially, for the stringency of environmental regulation. Reflecting on the channels linking environmental performance and resource dependence, and acknowledging institutional factors, we argue that buyer environmental performance is shaped by its pursuit of legitimacy through alignment with prevailing institutional logics. These logics are primarily determined by regulatory requirements and are also influenced by corporate reputation. This study contributes to the academic discourse by extending and empirically testing the explanatory power of RDT in the context of environmental performance. It also highlights the crucial role of supply chain relationships in sustainability for both managers and policymakers.