Customer risk disclosure and supplier innovation strategy: A risk spillover perspective

Abstract

This study investigates the impact of customers' risk factor disclosure on suppliers' innovation strategy decisions. Previous research has focused on the phenomenon of risk contagion in supply chain risk, and less on the countermeasures behind the phenomenon. Using supplier-customer matching data for Chinese A-share listed companies from 2007 to 2021, we find that upstream suppliers are more likely to engage in breakthrough inventions than incremental suppliers when downstream customers reveal more risk factors. Revealing risk factors for three types of customers, namely high bargaining power, low sales potential, and long distances, is closely related to driving suppliers to make breakthrough innovations. The results of the mechanistic test indicate that spillover of supply chain risk reduces suppliers' willingness to maintain relationships with high-risk customers. Suppliers make innovative decisions to enhance firm value when confronted with increased risk factor disclosures from downstream supply chain customers.