Reducing dependency: Corporate ESG profiles and customer structure

Abstract

AbstractUnderstanding the organizational consequences of corporate ESG and its underlying mechanisms is essential for corporate management to develop sustainable strategies, and it is a topic of growing interest in academia. This study, utilizing a sample of Chinese A‐share listed firms from 2010 to 2019, examines the impact of corporate ESG profiles on customer structure. We demonstrate that superior ESG profiles (primarily the social and governance aspects) contribute to reducing customer concentration. This effect is achieved by enhancing firm reputation and employee efficiency, thereby increasing market competitiveness and market share. This effect is more pronounced in firms that invest heavily in advertising and have employees committed to long‐term goals. Furthermore, we discover that ESG‐driven changes in customer concentration led to additional organizational outcomes, including enhanced bargaining power over customers, improved financial performance, and reduced operational risk. In conclusion, our evidence suggests that ESG significantly shapes a firm's customer structure and, consequently, its operations.