Suppliers' decision on green innovation: A response to customers' environmental regulation

This study examines whether customers' environmental regulation (ER) affects suppliers' green innovation. Relying on a unique dataset of customer-supplier relationships among listed firms in China, we demonstrate that suppliers' green innovation increases in response to intensified ER pressure faced by customers. This finding holds even when considering alternative proxies of green innovation and ER, and an alternative sample. We also demonstrate that the impact of customers' ER on suppliers' green innovation is positively correlated with customers' bargaining power. Our results contribute to the growing research on the crucial role of the supply chain in firms' decision making processes.

Automated summary

This study investigates how customers' environmental regulation impacts suppliers' green innovation. Using a unique dataset of customer-supplier relationships among listed firms in China, the findings show that suppliers increase their green innovation in response to intensified environmental regulation pressure from customers. This effect remains consistent across different measures of green innovation and environmental regulation, as well as a different sample. The study also finds that the influence of customers' environmental regulation on suppliers' green innovation is positively associated with the customers' bargaining power. Overall, these results contribute to the growing body of research on the significant role of the supply chain in firms' decision making processes.