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E-MailAriel Rava is an Assistant Professor of Accounting at Yeshiva University. This post is based on a recent paper by Professor Rava, Nicholas Seybert, Associate Professor at the University of Maryland, Musa Subasi, Associate Professor at the University of Maryland, and Emanuel Zur, Associate Professor at the University of Maryland.
Buyer–supplier relationships often hinge on what economists call relationship-specific investments (RSIs). These are tailored capabilities and assets that create unique value in the partnership but lose much of their usefulness elsewhere. Because such investments are difficult to redeploy, they expose suppliers to risk. Once committed, the customer might exploit the situation, renegotiating terms or capturing more value for themselves. Classic transaction cost economics (TCE) teaches that firms protect against this hazard with contracts, safeguards, or vertical integration. However, these mechanisms treat opportunism as a constant, assuming that all customers are equally risky partners. Our research asks a different question: do observable characteristics of the individuals who lead customer firms systematically alter the supplier’s perceived exposure to opportunism and, in turn, its willingness to invest?
Trust reduces perceived risk and encourages cooperation. Yet most accounts of supply chains still assume “the firm” acts as a uniform actor. In reality, individuals at the top play a pivotal role. Their choices and values set the tone for how contracts are interpreted, how problems are solved, and how conflicts are handled when surprises arise. We argue that the personality of the customer’s CEO offers an observable signal about how the firm will behave under uncertainty. Drawing on psychology’s Big Five framework, which includes openness, conscientiousness, extraversion, agreeableness, and neuroticism, we propose that these traits shape expectations of fairness, adaptability, and stability. For example, openness signals adaptability, agreeableness signals fairness, extraversion fosters communication, conscientiousness conveys reliability, and lower neuroticism reflects steadiness under stress. These cues are especially important when contracts are incomplete and RSIs are vulnerable.
To test this idea, we examine CEO turnovers at customer firms, which serve as natural resets in buyer–supplier relationships. When a new CEO steps in, the understandings forged with the predecessor vanish, and suppliers must reassess their expectations. Using linguistic tools that measure Big Five traits from CEOs’ unscripted speech in earnings calls, we study how suppliers adjust their behavior before and after leadership changes. Specifically, we look at the extent to which suppliers align their R&D spending with their customers’ R&D. A decline in alignment signals reluctance to invest in the relationship, while an increase reflects confidence and willingness to commit.
The results show a clear pattern. When the new customer CEO scores lower on traits linked to cooperation and adaptability, such as extraversion, openness, and agreeableness, suppliers reduce their R&D alignment. They appear to view these shifts as signals of diminished willingness to communicate, adapt to changing circumstances, or pursue mutually beneficial outcomes. In contrast, when the incoming CEO scores lower on neuroticism, meaning greater emotional stability, suppliers increase their alignment. Emotional steadiness is valued as a sign that the leader will not react erratically or adversarially under pressure. Interestingly, changes in conscientiousness show little short-term impact. This suggests that some traits, such as reliability, may take longer to affect perceptions of trust and investment.
The impact of CEO personality also depends on the balance of power in the relationship. Suppliers respond more strongly to leadership signals when they have leverage. For example, when customers are smaller in terms of sales or market value, declines in collaborative traits lead to sharper reductions in innovation alignment, while improvements in emotional stability encourage greater investment. By contrast, when customers are larger, structural dependence mutes the influence of CEO personality, and most trait changes have weaker or insignificant effects. Overall, these results highlight that CEO personality traits matter most when suppliers are in a position of leverage.
We also show that customer CEO personality shapes the dynamics of supplier ties. Relationships with customers led by more extraverted, open, and conscientious CEOs persist longer. Lower neuroticism, which indicates greater emotional stability, predicts fewer pauses in collaboration. These same CEO traits are also associated with broader supplier portfolios. The evidence therefore links executives’ Big Five traits to stronger supply-chain coordination, reflected in both relationship continuity and broader network scope.
Our study makes three contributions. First, we add behavioral depth to TCE’s classic problem of opportunism under asset specificity by showing that observable leader traits on the customer side shape suppliers’ RSI behavior. This complements governance-centric prescriptions such as contracts or integration by identifying when managers can rationally rely on who is across the table. Second, we extend the upper echelons literature to interfirm coordination by documenting that CEO personality at one firm shifts another firm’s innovation strategy. Third, we contribute to supply chain and interfirm network research by showing that stable psychological traits of customer CEOs help explain innovation alignment, tie survival, and portfolio breadth.
For practitioners, the findings highlight that leadership transitions at key customers are a critical moment to reassess both the stability of existing ties and the desirability of new investments. Monitoring changes in CEO traits can provide early signals for supply-chain risk management and strategic planning. For scholars, the results show the value of integrating insights from psychology into the study of interfirm coordination, answering calls for a more pluralistic view of transaction cost economics that acknowledges both governance structures and human behavior.
In the end, supply chains are not just webs of contracts and transactions. They are also networks of people, and the personalities of those at the top ripple outward, shaping investment, trust, and collaboration across entire networks.
