Does ESG performance reduce the company’s dependence on major customers?Evidence from China

In this study, we investigate whether better ESG performance reduces a firm’s dependence on its major customers. Taking Chinese A-share listed companies from 2009 – 2021 as the sample, we find that better ESG performance can decrease customer concentration and mitigate firms’ dependence on major customers. The conclusion remains robust after controlling for possible endogeneity. Mechanism tests indicate that better ESG performance fortifies corporate competitive advantages across supply, demand, and scale economies spectrums. Consequently, this impact disrupts the concentrated customer structure and ultimately reduces firms’ dependence on major customers. Additionally, the heterogeneity analysis based on enterprise characteristics shows that the negative impact of ESG performance on major customers dependence is stronger for non-SOEs, and firms with diversified operations. The heterogeneity analysis based on customer attributes reveals that the negative impact of ESG performance on major customers dependence is more pronounced when the customers’ bargaining power is higher, and when customers are not listed. Overall, our findings suggest that ESG performance can significantly affect a firm’s relationships with its major customers.