Hann, Rebecca, Subasi Musa and ZHENG, Yue. "Building Credible Commitments via Board Ties." Strategic Management Journal, Forthcoming.

Abstract

Research Summary:

Using a novel dataset that provides a comprehensive coverage of U.S. firms’ industrial supply chain relationships, we find that firms with innovation specific to a buyer are more likely to share a common director with that buyer. This association is stronger when the buyer has a larger number of alternative suppliers. We further find that when a supplier-buyer pair shares a common director, the supplier’s R&D investment is more sensitive to the investment opportunities of its buyer. Moreover, such pairs tend to have longer supply chain relationships. Taken together, our findings demonstrate that board ties serve as a credible commitment mechanism to support exchange along the supply chain and safeguard supplier’s buyer-specific investments.

Managerial Summary:

Our research shows that suppliers who create products or technologies tailored to a specific buyer are more likely to share a board member with that buyer. This relationship is stronger when the buyer has many other suppliers. Shared board members facilitate better communication and alignment between suppliers and buyers, leading to more effective R&D investments and longer-lasting business relationships. These ties help reduce the risk for suppliers when investing in customized solutions. For business leaders, strategically leveraging board connections can strengthen supply chain partnerships, promote collaborative innovation, and safeguard investments in buyer-specific technologies.