Supply chain network, ESG scores and financial performance

This paper provides novel evidence on the role of supply chain networks in influencing firms' environmental, social and governance (ESG) scores and financial performance. Our analysis employs financial, board, ESG and supply chain data, resulting in an unbalanced panel of over 16,000 firm-year observations from 3028 publicly traded US firms, spanning fiscal years from 2005 to 2021. We use two different supply chain network metrics, namely, the number of supply chain connections (degree centrality) and eigenvector centrality, and we use various financial performance measures such as ROA, ROE, ROS, Tobin's
and stock returns. Building on resource dependence theory, our results indicate that a larger supply chain network has a positive impact on ESG scores, while there is limited evidence to support a direct relationship between supply chain networks and financial performance. Interestingly, the impact of supply chain networks on financial performance appears to be indirect, operating through ESG, in line with signalling theory. Important practical implications are also discussed.