AbstractIn recent year, researchers have increasingly been shifting their attention from shareholder interests to the broader stakeholder interest in the form of corporate social responsibility (CSR) and its measurement in environment, social, and governance (ESG) performance. While the well-being of the broader stakeholder groups such as consumers and employees is addressed in most ESG frameworks, that of. This is quite surprising, as suppliers are key contributors to the value chain and their failure would have a significant adverse impact on the supply chain.
The purpose of this research is to study how buyer companies that are concerned with CSR behave towards their suppliers in the form of payment practices. In particular, do these companies behave ethically and properly address the interest of their suppliers by paying them in a timely manner? Accordingly, this research explores payment practices from the perspective of financial ethics with evidence from companies in Asia, more specifically in Hong Kong. The payment practices of companies in Hong Kong are studied, as Hong Kong is not only a leading business centre, but also one in the thriving Asian region.
This study looks into the behaviour of the 155 largest listed companies in Hong Kong and compares their payment practices by dividing them into two groups. One group of companies is identified as “good/ethical” companies based on a sample from an independent third party, Oxfam, and the Oxfam Blue Chip CSR survey (Oxfam BC CSR). The second group of companies forms a sample of comparison. Data from a six-year period (2014–2019) is collected based on Factset via the Wall Street Journal website. A novel approach to measuring payment practices in the form of net payment days (NPD) is utilised. Given the two-dimensional nature, cross-sectional and inter-temporal, of the data, the pooling approach is used to examine the data. To ensure robustness in the findings, this research applies a variety of statistical methods, including correlation analysis, regression analysis, panel data analysis and the propensity score matching (PSM) method.
The study finds that the key variable of interest, i.e. payment practice in the form of NPD, is related to a number of financial variables from prior studies (e.g. Abdulla et al., 2017, 2020). Furthermore, it finds consistent evidence that companies that are CSR-conscientious, i.e. the Oxfam group of companies, tend to pay their suppliers late. To evaluate the findings, this research deployed the Hersey-Blanchard willingness-ability framework to further classify the sample companies and came up with four categories of payers: speedy goodies (high willingness to pay and high financial ability), willing payers (high willingness to pay but low financial ability), dragged exploiters (low willingness to pay but high financial ability), and delinquent risks (low willingness to pay and low financial ability). Based on this analysis, the results suggest that the firms in the Oxfam sample do not, in the majority of the cases, lack the ability to pay, but rather adopt a payment practice that seems to be a deliberate act to hoard cash and drag out payments (i.e. dragged exploiters). This conjecture appears to be consistent with the view of Sorell and Hendry (1994).
The results of this study suggest that ESG advocates may need to strategise and reconsider the position and role of suppliers within the ESG framework. Rather than slotting suppliers into the social dimension, the S, of ESG and measuring performance from the perspective of human rights. Also, from the policymakers’ perspective, it may be necessary for them to take a closer look at payment practices and set up policies to ensure the healthy financial position of these SMEs, which are critical for the economy and economic growth.
|Date of Award
|26 Sep 2023
|Alper Kara (Main Supervisor) & Erhan Kilincarslan (Co-Supervisor)