Contracting With the Government on CSR: Evidence From the Supply Chain

Abstract

Research Question/Issue This study examines the role of government as a major customer in influencing corporate social responsibility (CSR) initiatives among supplier firms. Specifically, it investigates whether firms that rely on government customers are more likely to engage in substantive CSR practices to meet government expectations and maintain strong business relationships. Research Findings/Insights Our findings indicate that supplier firms with greater reliance on government customers exhibit a higher propensity to adopt CSR‐related executive compensation plans, establish CSR committees within their boards of directors, and voluntarily disclose climate change risks in their SEC filings. These effects are more pronounced for firms operating in states governed by Democrats and for smaller firms. To address endogeneity concerns, we employ instrumental variable analysis, difference‐in‐differences estimation, and entropy balancing, all of which reinforce the robustness of our results. Theoretical/Academic Implications This study contributes to the literature on CSR and stakeholder theory by highlighting the government's role as an influential stakeholder in shaping firms' CSR engagement through supply chain relationships. It also extends research on political economy by demonstrating how political leadership at the state level moderates firms' CSR responsiveness to government customers. Practitioner/Policy Implications Our findings suggest that policymakers can leverage government procurement policies to incentivize broader CSR adoption among supplier firms, thereby fostering positive social externalities. Firms seeking to establish or maintain government contracts should consider aligning their CSR strategies with government expectations to enhance their business relationships and long‐term sustainability.