The spillover effects of ESG performance on the trade credit : a supplier-customer dyad perspective

While previous research has explored the effects of firm’s ESG on its financial outcomes, the spillover effect of ESG performance on trade credit, particularly within supplier-customer dyads remains underexplored. This study examines how suppliers’ ESG performance serves as a financial signal influencing customers’ trade credit decision. We investigate the moderating roles of geographic distance and supplier power, two critical yet often overlooked factors that shape the effectiveness of ESG signaling in financial transactions. Using panel data from 1,234 supplier-customer dyads, we find that higher supplier ESG performance leads to more favorable terms from customers. However, this spillover effect weakens as geographic distance increases or when suppliers hold greater supply chain power. Furthermore, a post-hoc analysis suggests that these effects are stronger in high-tech industries but diminish in regions with less regulatory oversight.

This research highlights the financial signaling role of ESG in supplier-customer dyads, extending beyond firm-level ESG benefits to underscore its broader financial externalities. It also provides managerial and policy insights, emphasizing the need for firms to integrate ESG considerations into trade credit decisions to enhance resilience in supply chains. These findings reinforce ESG’s growing relevance as a competitive differentiator, particularly in industries where sustainability is integral to business success.