Financial behavior toward suppliers by ethical conscientious companies: Evidence from Hong Kong-listed companies

Abstract

In recent years, corporation social responsibility (CSR) has garnered significant attention, particularly in the context of environmental, social, and governance (ESG) practices.

While most ESG frameworks focus on the well-being of the broader stakeholder groups such as the environment, consumers and employees and shareholders, the ethical treatment of suppliers has largely been neglected.

This study examines how companies identified as CSR-conscious behave toward their suppliers, specifically regarding payment practices. Covering the years 2014 − 2019 (a 6-year period), before the covid-19 pandemic, the research analyzed a sample of companies identified by Oxfam for their CSR commitment, using net payment days (NPD) as a novel measure of financial ethics.

The key finding reveals that CSR-conscious companies tended to neglect suppliers’ interests, and pay them later than those in the comparison group that were less CSR focused. To determine whether the delay was driven by financial constraints, the study examined factors like financial ability to pay. Results indicate that most firms in the Oxfam identified sample were financially capable of timely payments. As such, the practice of delayed payment appeared to be a deliberate act of hoarding cash, aligning with the concept of shareholder wealth maximization but raising ethical concerns.

These findings highlight not only the payment practice of CSR-conscious firms, but also questions how ESG frameworks address suppliers’ interests. Most ESG frameworks tend to view suppliers through a compliance lens rather than recognizing them as key stakeholders in CSR.