Buffer or burden? The role of corporate reputation in the market valuation effects of suppliers’ human rights controversies

Does corporate reputation buffer firms from reputational spillovers, or can it backfire when controversies arise? This study examines how corporate reputation shapes the market-valuation consequences of suppliers' human-rights controversies, recognizing that shareholders may hold focal firms accountable for upstream misconduct. Using an international panel of RepTrak® Pulse firms from 2011 to 2023, we show that supplier-related human-rights controversies are associated with lower market valuation and that corporate reputation amplifies this negative association, consistent with a reputational "boomerang" effect. We further theorize and test firm visibility as a boundary condition: the reputational burden is stronger when the focal firm receives higher media coverage, reflecting greater public visibility and stakeholder attention. We estimate interaction-based dynamic panel models using two-step System GMM to address endogeneity and complement coefficient estimates with marginal-effects analyses to facilitate interpretation of conditional relationships. Robustness checks using market-to-book yield qualitatively similar inferences. The findings suggest that highly reputed and highly visible firms need supply-chain governance mechanisms that can anticipate, detect, and respond to upstream human-rights controversies.