Management Accounting Section Midyear Meeting

Major Customers’ Long-term CEO Incentives and Suppliers’ Performance

• In Event: Supply Chain

Abstract

In this paper, we examine the relationship between major customers’ long-term incentives for their top-level managers (namely, CEOs) and supplier firms’ performance. Long-term equity incentives encourage CEOs to pursue relatively long-time horizons, potentially influencing certain relationships with slanted bargaining power. We predict and find that major customers’ long-term CEO incentives, as measured by CEO incentive for unvested equity, are positively associated with supplier firms’ profitability, partially through a reduced emphasis on myopic price-cuts. However, the effects that major customers’ long-term CEO incentives have on supplier firms are quite nuanced. Customers’ equity incentives appear to decrease suppliers’ operational efficiencies and cost elasticity, implying that suppliers bear burdens of implementing stable resource supplies. Collectively, our results suggest that customers’ long-term incentives may have multifaceted consequences on suppliers’ performance and operations.

Authors

• Sohee Park, Seoul National University

• Sun-Moon Jung, Seoul National University