Power dynamics and financial flexibility: Insights from supply chain dyads

Grounded in Resource Dependence Theory and Bargaining Power Theory, this study investigates how power asymmetries in supplier–customer relationships affect customer operational efficiency, with a particular focus on the supplier's strategic use of financial flexibility. We collected 974 paired dyadic data from the China Stock Market and Accounting Research Database in 2016–2023 and used panel-data regression analysis. Surprisingly, we discovered an inverted U-shaped relationship between the supplier's financial flexibility and the customer's efficiency. This suggests the power effect of financial flexibility on performance in a supply chain dyad is not quickly realized until a certain threshold is reached in our context. We also investigated contextual factors of power dynamics, focusing on relationship strength and environmental uncertainty. We found that higher supplier dependence reduces the threshold for the impact of the supplier's financial flexibility on customer efficiency, as does high market uncertainty. Our study contributes to the literature by highlighting the challenges of utilizing financial flexibility to readjust power dynamics in Chinese supply chain dyads. However, our findings suggest to the supplier managers that the effective use of this approach relies heavily on the dependence factor and market uncertainty.