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Discussion Paper Details

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Title: The Dark Side of Stakeholder Influence: The Surprising Effect of Customer Fraud on Suppliers

Author(s): Shantanu Banerjee, Sudipto Dasgupta and Rui Shi

Publication Date: November 2021

Keyword(s):

Programme Area(s): Financial Economics

Abstract: We show that influential stakeholders distort corporate policies when they cannot commit to a long-term relationship. Following the revelation of financial fraud by a major customer, suppliers surprisingly outperform a control group in terms of sales growth, Tobin's Q and survival likelihood over a ten-year period. Our results suggest that, prior to the fraud revelation, managers' short decision horizons and aversion to short-term risk or uncertainty enables influential customers to demand relationship-specific innovation when their bargaining power is stronger, leading to suboptimal diversification. When customer bargaining power weakens, suppliers engage in riskier and novel innovation, which diversifies the customer base.

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Bibliographic Reference

Banerjee, S, Dasgupta, S and Shi, R. 2021. 'The Dark Side of Stakeholder Influence: The Surprising Effect of Customer Fraud on Suppliers'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16701