This study examines when and how supply chain traceability and due diligence practices enhance financial performance, measured as asset turnover (ATO), in the fashion industry. Drawing on legitimacy theory and organizational slack, we argue that the financial returns from these practices are contingent on firms' operational efficiency, specifically, inventory efficiency and selling, general and administrative (SG&A) efficiency, rather than universal or unconditional.
We combine archival data from the fashion revolution foundation's annual fashion transparency index with financial data from Compustat for a sample of 40 publicly traded fashion companies. Moderated regression analysis tests whether inventory efficiency and SG&A efficiency condition the traceability-ATO and due diligence–ATO relationships.
The direct effects of traceability and due diligence on ATO are not statistically significant when examined in isolation. However, traceability positively influences ATO when moderated by high inventory efficiency and high SG&A efficiency. Contrary to the moderating pattern for traceability, due diligence shows negative interaction effects under conditions of high operational efficiency, suggesting important theoretical and practical distinctions between these two types of transparency practice.
This article offers the first empirical evidence linking supply chain traceability and due diligence to financial performance in the fashion industry, introducing operational efficiency as a boundary condition that explains when, and for whom, these practices yield measurable returns. The asymmetric moderation patterns for traceability versus due diligence challenge prevailing assumptions that transparency is uniformly beneficial, and contribute to legitimacy theory by specifying the resource conditions under which CSP investments translate into financial gains.
