Customers matter: How do key corporate customers affect the environmental-financial performance relationship?

This paper examines how the relationship between the supplier's environmental and financial performance may be contingent on its key corporate customers' environmental performance (EP). Drawing on status theory, we theorize that the financial rewards a supplier receives for its environmental improvements depend on both its EP and that of its key customers. An analysis of panel data from U.S. public firms validated our hypotheses. We find a curvilinear relationship between suppliers' EP and financial performance (FP). We also find that the curvature and direction (i.e., increasing or decreasing) of the relationship depend on key customers' EP. Our results contribute to the literature by providing theoretically grounded explanations and empirical evidence that emphasize the importance of key stakeholders in suppliers' EP‒FP relationships. This research is the first large-scale study in the corporate environmental management literature to empirically examine customer influence on profitability.