The spillover effect of ESG disclosure quality: evidence from major customers

This study explores the influence of major customers' ESG disclosure quality on their suppliers' ESG practices. Utilizing a matched customer-supplier dataset, we find that high-quality ESG disclosures from major customers notably elevate their suppliers' subsequent ESG scores, revealing a spillover effect in supply chain ESG quality. This effect is more pronounced for suppliers facing intense market competition or with limited innovation capabilities. Furthermore, major customers with higher visibility tend to pressure suppliers towards aligning their ESG disclosures. Economically, this spillover effect benefits suppliers in trade credit, evidenced by increased turnover ratios of accounts receivable, growth in short-term accounts receivable, and a reduction in overdue accounts. Overall, our research indicates that supply chain relationships significantly shape ESG disclosure policies.