The Impact of Supplier Sustainability Risk on Shareholder Value

Business scandals like sweatshop labor have received growing attention in the field of supply management. Yet little is known about how detrimental such scandals are to buying firms. This study aims to fill this gap by examining the magnitude of the consequences of what are termed as supplier sustainability risks (SSRs). To this end, we conduct an event study analysis followed by regression modeling based on a sample of 196 U.S. publicly traded firms’ SSRs. The results reveal that SSRs are associated with a 1.00 percent reduction in shareholder wealth. The market reacts negatively but not differently to the two types of SSR: process‐related risks and product‐related risks. Finally, a firm's moral capital does play a mitigating role for SSRs and process‐related risks; however, it does not provide insurance‐like protection for product‐related risks.