In an increasingly open and transparent information environment, negative media coverage of Environmental, Social, and Governance (ESG) issues would detriment focal firms’ legitimacy and performance. However, we have a limited understanding of whether negative media coverage of supply chain partners would spill over to focal firms. Using a panel dataset from Chinese listed firms, we examine the research question at a dyadic (i.e., focal firm and supplier or customer) level. This study reveals that negative media coverage about supply chain partners’ ESG issues can cause a spillover effect, negatively impacting the focal firms’ financial performance. Notably, the extent of this impact is contingent on the reach of the media sources and the severity of the coverage. We also show that focal firms are more impacted by supply chain partners with stronger relationships and greater market power. Our findings underscore the importance of actively managing partners’ ESG issues to avoid potential financial losses within a multi-tier supply chain. This study has fruitful contributions to the literature on supply chain sustainability and the spillover effect in dyadic relationships.

This paper examines the spillover effect of environmental regulations on firms’ green technological innovation, from the perspective of supply chain relationships. Analyzing data from Chinese listed companies, we find that the average environmental regulatory pressure faced by the client firms of a supplier firm enhances the green patent applications filed by the supplier firm, indicating that environmental regulatory pressure from clients spills over to suppliers. When the industries of suppliers are more competitive or the proportion of their sales from the largest client is higher, suppliers feel more pressured to engage in green innovation, resulting in more green patent applications. Thus, via their negotiation power, client firms can prompt supplier firms to innovate to meet their demand for green technologies. Finally, we show that this effect is particularly pronounced when supplier firms are located in highly marketized regions, receive low R&D government subsidies, or have high ESG ratings.