Follow-suit or free-ride? A relational view of CSR diffusion in a supply chain with customer–supplier closure

Abstract

Embedded in networks of relationships, firms are who they buy from and sell to. As a result, a firm's corporate social responsibility (CSR) practices can be influenced by CSR practices of its customers and suppliers—known as CSR diffusion. This study examines how CSR diffuses in a supply chain that encompasses a focal firm, its suppliers, and customers. Adopting a relational view, this research hypothesizes that a firm's CSR is influenced by its customer-base CSR differently than its supply-base CSR. By analyzing panel data consisting of 1972 firm-year observations integrated from multiple data sources, the results offer evidence for a positive impact of customer-base CSR and a negative impact of supply-base CSR on firm CSR. Interestingly, when customers and suppliers of a focal firm establish direct business connections (i.e., customer–supplier closure), the positive follow-suit effect of customer-base CSR is enhanced. In contrast, the negative free-ride effect of supply-base CSR is diminished. This suggests that a focal firm is more likely to embrace CSR practices from CSR-active supply chain partners when embedded in closed triads. This research shows the need to consider the directionality and closure of relationships in understanding the diffusion of voluntary, ill-defined, costly operational practices within a supply chain.