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Disruption of customers' political connections and suppliers' ESG performance: Evidence from China

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  • Xu, Yanhui
  • Jin, Yangyang
  • Deng, Fuhua
  • Feng, Qianbin

Abstract

This study examines how the severance of political connections in customer firms affects the ESG performance of their upstream suppliers. Using a matched customer-supplier dataset of Chinese listed firms and the “Regulation 18” in 2013 as a quasi-natural experiment, we construct a difference-in-differences framework to identify the causal effect. The results show that the severance of customers’ political ties significantly reduces suppliers’ ESG scores, particularly in the environmental and social dimensions. Mechanism analyses suggest that this effect is driven by financial pressure transmission and elevated perceived default risk. Our findings highlight the inter-firm spillover of political events through supply chains and suggest that corporate ESG behavior is not only firm-driven but also relationally shaped.

Suggested Citation

  • Xu, Yanhui & Jin, Yangyang & Deng, Fuhua & Feng, Qianbin, 2025. "Disruption of customers' political connections and suppliers' ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 86(PF).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pf:s1544612325020471
    DOI: 10.1016/j.frl.2025.108793
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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