Innovation and Knowledge Accumulation in Buyer-Supplier Relationships

In this study, we focus on a buyer as a source of technological knowledge for a supplier, and examine factors that make a supplier accumulate technological knowledge from the buyer. Specifically, we study buyer innovation, technological similarity between a supplier and a buyer, a supplier’s dependence on a buyer, and buyer-supplier size asymmetry, and how these factors interrelate in influencing the extent of supplier’s knowledge accumulation from the buyer. We use panel data on supplier-buyer relationships from Bloomberg SPLC, patent data from USPTO, and accounting information from Compustat to test the hypotheses. Our sample comprises 6759 supplier-buyer-year observations constituted by 2774 unique dyads, 250 unique suppliers, and 342 unique buyers spanning four years from 2011 through 2014. We find that the extent of a supplier’s knowledge accumulation from a buyer increases with buyer innovation and that the extent of knowledge accumulation is higher with high buyer innovation along with high technological similarity. We also find that a supplier’s dependence on a buyer plays a positive moderating role in the relationship between buyer innovation and the extent of supplier’s knowledge accumulation from the buyer. The combined effect of buyer innovation and buyer-supplier size asymmetry also enhances the extent of supplier’s knowledge accumulation from the buyer. In summary, this study highlights some of the key factors that can influence a supplier’s decisions which is considering its buyers as a source of external technological knowledge.