Toward sustainable supply chains: impact of buyer's legitimacy, power and aligned focus on supplier sustainability performance

Purpose As large multinational firms are increasingly tasked with developing sustainable supply chains, their role in improving the sustainability performance of their suppliers is critical. This paper examines the dual role of a buyer firm, as a customer and as an important stakeholder, and identifies several attributes of the buyer firm and the dyadic relationship that could help improve the sustainability performance of suppliers. Design/methodology/approach A dyadic multi-year dataset is created using financial and customer data from the Compustat database and sustainability data from MSCI ESG ratings database. The hypotheses are tested using econometric panel data techniques. Findings The findings indicate that a buyer's legitimacy is a key factor that affects supplier's sustainability performance. The effect of legitimacy is much higher when the buyer and supplier firms have an aligned focus on similar sustainability dimensions. The market power of the buyer also increases the effect of legitimacy, though power without legitimacy is not effective. Originality/value The study expands the understanding of how buyer firms can influence suppliers on sustainability by highlighting the key role played by legitimacy and aligned focus and the supporting role of market power. The study contributes to both the stakeholder salience literature and the buyer-supplier relationship literature by showing evidence for complementarity between market power and legitimacy. Buyer firms can use the results of the study to focus their efforts on suppliers where a significant improvement in sustainability can be expected.