A Market Value Analysis of Buyer-Supplier Relationship Building Awards

Abstract

The purpose of this article is to study the signaling potential of "supplier awards" in creating shareholder value for the award-giving and the award-receiving firm. We use event study methodology with supplier awards as events that signal mutually beneficial buyer-supplier relationship (BSR) efforts to estimate the firm value generated from these efforts. Supplier awards, apart from being a supplier development (SD) activity in themselves, are also a signal of a mutually beneficial relationship between a buyer and a supplier. This article performs a deep study by investigating the impact of traits, such as award exclusivity and award satiation, on the efficacy of supplier awards as a signaling mechanism. We find that shareholders of firms that give awards (buyers) and those of firms that receive awards (suppliers) react positively to such events, thereby establishing the signaling potential of supplier awards that signal the mutually beneficial BSR and SD efforts. We find that a more exclusive award has a higher positive impact on the buyer's shareholders. We also find that there is a higher impact on the supplier's market value when that supplier receives awards less frequently. This article pioneers a study of interorganizational awards that considers traits, such as exclusivity and award satiation, that are not frequently studied in extant research. IEEE