Using a novel dataset that provides a comprehensive coverage of U.S. firms' industrial supply chain relationships, we find that firms with innovation specific to a buyer are more likely to share a common director with that buyer. This association is stronger when the buyer has a larger number of alternative suppliers. We further find that when a supplier–buyer pair shares a common director, the supplier's R&D investment is more sensitive to the investment opportunities of its buyer. Moreover, such pairs tend to have longer supply chain relationships. Taken together, our findings demonstrate that board ties serve as a credible commitment mechanism to support exchange along the supply chain and safeguard suppliers' buyer-specific investments.
Rebecca Hann, University of Maryland-College Park; Musa Subasi, University of Maryland-College Park; Yue Zheng, Hong Kong University of Science and Technology