Anticipated Earnings Announcements and the Customer-Supplier Anomaly

Abstract

I test whether the anticipation of earnings news stimulates acquisition of customer information and mitigates returns to the customer-supplier anomaly documented by Cohen and Frazzini ("Economic Links and Predictable Returns." The Journal of Finance 63 (2008): 1977-2011). I find that attention to a firm's publicly disclosed customers increases shortly before the firm announces earnings, and that customer stock returns predict supplier stock returns shortly before, but not after, the supplier's earnings announcement. I further find some evidence that these predictable returns are increasing in the level of customer information acquisition. These results are unique to anticipated disclosure events and suggest that anticipation of supplier earnings * Carlson School of Management, University of Minnesota.Accepted by David F. Larcker. This paper is based on my dissertation at the University of Chicago. I am grateful for the comments of my dissertation committee: Douglas Skinner (chair), Ray Ball, Philip Berger, and Toby Moskowitz, as well as comments from an anonymous referee,

Is Investor Attention for Sale? The Role of Advertising in Financial Markets

“…We use these instrumental variables in two‐stage least squares (2SLS) regressions to analyze the effect of advertising on investor, rather than consumer, attention . Specifically, using daily Google searches for company stock tickers ( Ticker SVI ) as a measure of retail investor attention (Da, Engelberg, and Gao [], Drake, Roulstone, and Thornock [], Madsen []), we find that Ticker SVI spikes by 4.9% on company‐specific advertising days relative to nonadvertising days. In both the first‐stage and second‐stage regressions, we include controls for media coverage of the firm immediately before, on, and after the advertising day, as well as additional controls for product launches on these days, earnings announcement dates, and EDGAR filing dates.…”

“…Finally, we contribute to a broad literature on investor attention and information dissemination (Hirshleifer, Lim, and Teoh [], DellaVigna and Pollet [], Bushee et al. [], Drake, Roulstone, and Thornock [], Drake, Guest, and Twedt [], Dai, Parwada, and Zhang [], Twedt [], Rogers, Skinner, and Zechman [], Madsen [], deHaan, Madsen, and Piotroski [], Blankespoor, deHaan, and Zhu []). Although prior studies generally focus on the effects of attentiveness to and dissemination of information‐rich events such as earnings announcements or media coverage, we demonstrate that even frequent and repeated events that reveal little nonpublic information impact the behavior of attention‐constrained investors, reducing awareness costs (Blankespoor, deHaan, Wertz, and Zhu []).…”

Do Weather-Induced Moods Affect the Processing of Earnings News?

“…To our knowledge, our study is unique in using large-sample, archival data to investigate the effects of weather-related moods on professionals' activity levels and work output. 12 See also Hong and Stein [1999], Hirshleifer and Teoh [2003], Cohen and Frazzini [2008], Teoh [2011], deHaan, Shevlin, andThornock [2015], Madsen [2016], and Niessner [2015]. 13 Bushee and Friedman [2016] find that stronger disclosure standards are associated with lower return-mood sensitivity.…”

The Effect of a Major Customer’s Information Quality on Its Supplier’s Investment Decisions

“…A substantial portion of this literature focuses on spillover of information among industry peers and the effect of publicly disclosed information. The papers that examine the effect of a customer's information on the supplier generally focus on how the information is processed by a third party (Madsen 2017;Dhaliwal, Shenoy, and Williams 2016;Files and Gurun 2017). I add to these studies by focusing on the direct effect of customer information on a supplier's decisions and providing evidence that higher customer information quality increases supplier investment levels.…”