Do the Benefits of Innovations Spill Over from Suppliers to Customers?

Abstract

Prior research has extensively examined customer-supplier relationships and documented the dominant roles that customers play in firms' financial and investment decisions. Although the nature of the relationship between customers and suppliers is bilateral, the literature has predominantly examined the relationship through the lens of customers, overlooking the impact that suppliers have on customers. Do the benefits of innovation spillover from suppliers affect customers along supply chains? The answer remains unknown. Accordingly, our study explores the benefits of innovation spillovers from suppliers to customers along the supply chain, namely the impact of suppliers' innovation activities on their customers' profitability. We find a positive association between suppliers' innovation activities and customers' profitability, consistent with the innovation spillover from suppliers to customers along supply chains. We also find that this relationship has become more pronounced in recent years, implying the importance of technology and employee mobility in spillover effects along the supply chain. Our additional analysis supports the robustness of this result. Our paper sheds light on the studies and practices of supply chain management by offering a holistic view of suppliers' roles in corporate innovation along supply chains.