When the chickens come home to roost: The short‐ versus long‐term performance implications of government contracting and supplier network structure

Abstract

The old adage "it is not what you know, but who you know" suggests that in connection(s) lies the key(s) to success. But what does success mean, and for how long will it last? What does the choice of partner, and network connections say about the performance implications of contracting, particularly in the case of a publicprivate partnership? With countries such as the United States accounting for the world's largest buyer (of any and everything), several suppliers eagerly await their opportunity to contract with large government entities, but is it always a wise decision? Such questions remain largely unexplored and require answers. This research provides answers to these questions by integrating congruence, and network theory to investigate how government contracting impacts private suppliers' financial performance and how suppliers' supply chain network connections moderate this relationship. Results using panel data over several years suggest that while contracting with government bolsters' short-term financial performance (ROA), it negatively affects long-term supplier performance (Tobin's Q). In addition, the prominence of a firm's connections (i.e., who they know) and the composition of these connections enhances the performance gains, highlighting the critical role of a firm's network structure on their performance within the contracting relationship. We therefore find that the power of supply chain network connections enhances the short-term positive effects and mitigates the long-term adverse effects when contracting with government buyers, as the relationship is not always universally positive.

How do suppliers respond to institutional complexity? Examining voluntary public environmental disclosure in a global manufacturing supply network

“…A corporate logic is centered around concepts of organizational size and status (Thornton et al, 2012). Organizational size is often operationalized using total assets (e.g., Eroglu & Hofer, 2011; Falcone et al, 2023; Jacobs et al, 2010; Laamanen & Keil, 2008; Liu et al, 2009; Luo, Guo, et al, 2019; Qiu et al, 2022; Swift et al, 2019), number of employees (e.g., O'Leary‐Kelly & Flores, 2002; Sila, 2007; Yeung, 2008), and other measures such as sales (e.g., Fullerton et al, 2003; Hendricks & Singhal, 2001), and cost of goods sold (e.g., Barker et al, 2022). We chose to use total assets since it is commonly understood as a proxy for firm size as it represents a stable and objective measure of a firm's financial footprint and it is reported annually in line with regulated financial disclosures – buyer total assets should be closely related to a supplier's attention and positive appraisals if the supplier's decision‐making is shaped by a corporate logic (Ocasio, 1997; Thornton et al, 2012).…”

Growing, learning, and connecting: Deciphering the complex relationship between government customer concentration and firm performance

“…Government customer concentration assesses how firms prioritize government relationships within their customer portfolios. Governments, as the primary procurers globally, forge pivotal ties with suppliers, offering long-term contracts and stable revenue streams, as noted by Falcone et al (2023) and Eckerd and Girth (2017). These associations are not merely financial but also encompass often-overlooked non-financial dimensions.…”

“…1 Additional details regarding the comparison between this current paper and Falcone et al (2023) can be found in Supporting Information S1.…”

“…Examining government customer concentration through the lens of information processing reveals that engaging in government contracts introduces heightened complexity in information processing. This primarily stems from the distinctive regulations and procedural intricacies associated with including government buyers in the customer portfolio (Falcone et al, 2023). Consequently, managing the customer base becomes more intricate.…”

Unobserved variables in archival research: Achieving both theoretical and statistical identification

“…In the second to last manuscript, Falcone et al (2023) present, “When the Chickens Come Home to Roost: The Short‐term vs. Long‐term Performance Implications of Government Contracting and the Moderating Role of Supplier Network Structure”. The tradition of our research occurs at the organizational level, but we seldom examine the size mismatch that occurs in public private partnerships.…”