Customer CEO Turnover and Supply Chain Contract Renegotiations

• In Event: Potpourri II

Abstract

This study investigates whether customer CEO turnover leads to the changes in the selection of suppliers and supply chain contract renegotiations. Using a two-stage regression approach, we find that CEO turnovers due to resignation drive the termination of the relationship with suppliers, while CEO turnovers due to other reasons do not. In addition, using a difference-in-differences research design, we find that a supplier’s sales to a customer and profitability significantly decrease by 10.0 percent and 8.3 percent, respectively, after its customer company reports a new CEO. At the same time, we find that customer firms with new CEOs accelerate the payment speed for their lower purchase costs from suppliers. Lastly, we find that the renegotiations on costs between supplier and customer following customer CEO turnover depend on relative bargaining power between supplier and customer. Overall, our evidence suggests that new CEOs of customer firms make adjustments in their suppliers and renegotiate supply chain contracts terms for lower costs, impacting supplier’s profitability.

Authors

• Hoyoung Kim, Kent State University

• Shunlan Fang, Kent State University

• Pervaiz Alam, Kent State University