Effects of customer unionization on supplier relationships and supplier value

Abstract

This study examines whether suppliers modify trading strategies upon their customers’ unionization. The study demonstrates that when customers unionize, suppliers experience negative stock returns and rely less on the unionized customers for sales. Results are robust for alternatively using a regression discontinuity design. Suppliers reduce their exposure to unionized customers due to the demand uncertainty arising from potential labor disruptions, the customers’ reduced competitiveness in the product market, and customers’ potential shifting of unionization costs to suppliers. Furthermore, suppliers with unionized customers mitigate risks by seeking new customers and diversifying their customer concentration.