Strategic Similarity and Investment Efficiency

We examine whether sharing similar business strategies between suppliers and customers increases suppliers’ investment efficiency. Using a data set of U.S. supplier-customer dyads, we posit and find that sharing strategic objectives with major customers is associated with higher-quality supplier investment decisions. Specifically, strategic similarity between supply chain partners is associated with a lower likelihood of underinvestment and overinvestment by suppliers. We also find that strategic similarity improves supplier investment decisions when the customer’s information environment is weak. In addition, our cross-sectional analyses show that strategic similarity is associated with higher investment efficiency for suppliers in durable goods industries and for those with customers who are likely to switch to other suppliers.