Does Environmental Embeddedness Reinforce or Undermine: Effects of Network Embeddedness on Unethical Behavior in Buyer–Supplier Relationships

ABSTRACT Drawing on social network theory, we develop a moderated model in which network embeddedness is an informal governance mechanism to inhibit suppliers' unethical behaviors. Since the relational network is also embedded in a specific business environment and institutional context, we explore the mutually nested role of environmental embeddedness and network embeddedness. We test the model using dyadic data on the buyer–supplier relationship drawn from Chinese household electronics, automotive, and communications suppliers and buyers. The results show that regarding the relational aspect, network embeddedness has an inhibitive role on suppliers' deceitful and subtle practices, and political ties strengthen the inhibitive role of network embeddedness on unethical behaviors, while competitive intensity exerts contingency effects on this role. Our findings prove the value of network embeddedness in managing unethical behavior. We provide evidence for the mutually nested view of embeddedness. Specifically, we reveal that competitive intensity reinforces the inhibited effects of network embeddedness on deceitful practices. In addition, our study reveals that in the Chinese institutional environment, political ties reinforce the inhibited effects of network embeddedness on deceitful and subtle practices.