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Customers’ Risk Tolerance and Suppliers’ Investment Inefficiency

Author

Listed:
  • Karel Hrazdil

    (Beedie School of Business, Simon Fraser University, Burnaby, BC V5A 1S6, Canada)

  • Jeong-Bon Kim

    (College of Business, City University of Hong Kong, Kowloon, Hong Kong 999077, China)

  • Xin Li

    (Beedie School of Business, Simon Fraser University, Burnaby, BC V5A 1S6, Canada)

Abstract

We examine the effect of the risk tolerance of downstream firms (i.e., customers) on the investment inefficiency of upstream firms (i.e., suppliers). Using the pilot licensing status of the CEOs as a proxy for their inherent risk tolerance, we find that customer firms led by pilot CEOs are associated with suppliers’ investment inefficiency, where investment inefficiency is more pronounced when the suppliers have less bargaining power over their customers. Our dynamic analysis confirms the causative relation between customer risk tolerance and supplier investment inefficiency and suggests that customers’ risk tolerance plays a significant role in shaping suppliers’ relationship-specific investment strategies.

Suggested Citation

  • Karel Hrazdil & Jeong-Bon Kim & Xin Li, 2022. "Customers’ Risk Tolerance and Suppliers’ Investment Inefficiency," JRFM, MDPI, vol. 15(2), pages 1-20, February.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:2:p:63-:d:739959
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    References listed on IDEAS

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    1. Terry A. Taylor & Erica L. Plambeck, 2007. "Supply Chain Relationships and Contracts: The Impact of Repeated Interaction on Capacity Investment and Procurement," Management Science, INFORMS, vol. 53(10), pages 1577-1593, October.
    2. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
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    Cited by:

    1. Hrazdil, Karel & Li, Xin & Suwanyangyuan, Nattavut, 2022. "CEO happiness and forecasting," Global Finance Journal, Elsevier, vol. 52(C).

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