Concentrating or dispersing? The double-edged sword effects of supplier concentration on firm financial and innovation performance

Abstract

While firms often engage with multiple suppliers, prior research has paid limited attention to the performance consequences of supplier concentration. Drawing on transaction cost economics and the knowledge-based view, we propose differential influences of supplier concentration on different facets of firm performance. Based on a sample of listed manufacturing firms from 2012 to 2017 in China, our findings reveal that, whereas supplier concentration enhances the buyer firm’s financial performance, it decreases the innovation performance. Further, organizational slack strengthens the effect of supplier concentration on financial performance and mitigates its negative impact on innovation performance. In addition, industry competition amplifies the effects of supplier concentration on financial and innovation performance. Overall, our study demonstrates the double-edged sword effects of supplier concentration and provides a holistic understanding of its performance implications.