Are firms with heavily polluting customers greener? A perspective from environmental legitimacy pressure spillover

In this study, we examine whether and how the environmental sensitivity of major customers influences their suppliers’ green innovation. Drawing on the spillover effect perspective, we argue that major customers located in heavily polluting industries face heightened stakeholder scrutiny, which can spill over to their suppliers and motivate the suppliers to enhance green innovation. Using as a sample of Chinese listed firms from 2008 to 2021 and adopting the Tobit regression analysis, we find a positive effect of heavily polluting customers on suppliers’ green innovation. Moreover, the geographical proximity and interlocking directors between the customers and suppliers tend to amplify, while suppliers’ ISO 14,001 certification tends to mitigate, the above effect. Mechanism analysis indicates that increased media attention towards suppliers’ environmental practices serves as a channel through which spillover occurs. Our study contributes to the literature by clarifying how major customers influence supplier green innovation and enriching the understanding of spillover effects in supply chains.