Unearthing the Lower-Tier Suppliers: Evidence from Conflict Minerals Disclosure

Abstract

We examine whether mandatory supply chain disclosure enhances firms’ ability to manage supply chain risk. We exploit the US conflict minerals disclosure (CMD) rule, which requires public firms to trace tin, tantalum, tungsten, and gold through all supplier tiers and publicly report sourcing from conflict-affected regions, as an exogenous shock to multi-tier supply chain visibility. Using a difference-in-differences design and the text-based supply chain risk measure from Ersahin et al. (2024a), we find that treated firms experience a statistically and economically significant decline in perceived supply chain risk following the rule’s adoption. Mechanism analyses show that CMD prompts both expansion and geographic diversification of supplier networks, especially when lower-tier supplier commonality is greater. Consistent with this mechanism, cross-sectional test results indicate that the risk reduction is greater when firms have greater flexibility to reconfigure sourcing. Further, treated firms exhibit greater resilience to disruptions involving lower-tier suppliers, with muted sales declines and reduced reliance on inventory buffering. Our findings suggest that socially motivated disclosure mandates can generate unintended operational benefits by improving upstream visibility and resilience.