Information Externalities along the Supply Chain: The Economic Determinants of Suppliers’ Stock Price Reaction to Their Customers’ Earnings Announcements*

Pandit, Shail; Wasley, Charles E.; Zach, Tzachi

doi:10.1111/j.1911-3846.2011.01092.x

Cited by 217 publications

(79 citation statements)

References 44 publications

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“…Undoubtedly, uncertainty in suppliers’ future cash flows has a negative impact on their performance. The literature shows that suppliers’ stock prices react to the release of news on the customers (e.g., earnings announcements, horizontal mergers, and bankruptcy filings), suggesting that investors incorporate customer information to form expectations about the suppliers (e.g., Fee & Thomas, ; Hertzel, Li, Officer, & Rodgers, ; Olsen & Dietrich, ; Pandit, Wasley, & Zach, ). Supply chain information is helpful to other related parties as well, including financial analysts, loan officers, and banks.…”

Section: Prior Literature and Hypotheses Developmentmentioning

confidence: 99%

The externalities of credit default swaps on stock return synchronicity

Zhao

Zhu

2019

Journal of Futures Markets

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We examine the externality effect of customer firms’ credit default swap (CDS) trading on the stock price informativeness of supplier firms. Our empirical results show that firms with a high proportion of sales to CDS referenced customers tend to have more firm‐specific embedded information in their stock prices and thus higher stock price informativeness, which is associated with a lower level of stock return synchronicity. We provide new evidence of CDS trading externality on equity market information environments along the supply chain.

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Section: Prior Literature and Hypotheses Developmentmentioning

confidence: 99%

The externalities of credit default swaps on stock return synchronicity

Zhao

Zhu

2019

Journal of Futures Markets

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“…Additionally, Pandit et al. () find that the share prices a firm enjoys is, in part, a function of the performance of its key customers. Building off of this work, in the following sections, we utilize literature on supply chain portfolios and credit ratings to substantiate our research.…”

Section: Literature Reviewmentioning

confidence: 99%

Customer and Supplier Portfolios: Can Credit Risks be Managed Through Supply Chain Relationships?

Schwieterman

Goldsby

Croxton

2018

J of Business Logistics

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While supply chain risk has been the subject of an ever‐increasing amount of research attention, the importance of credit risk has been less studied, at least by supply chain researchers. Yet, there may be risks inherent within a firm's portfolios of supply chain relationships that are manifested in the credit risk of a firm. Moreover, portfolio characteristics may serve as a signal to the external market regarding these risks. While customer and supplier portfolio characteristics may impact the firm's exposure to risks, the specific issue of how portfolio characteristics relate to credit risk has rarely been examined by supply chain scholars. This research bridges extant works in supply chain management and finance to relate supply chain characteristics to a critical reputational outcome, namely credit ratings. In this research, we utilize a sample of firms that recently underwent an initial public offering to empirically examine the theoretical predictions of Resource Dependence Theory regarding the relationships between different supply chain portfolio characteristics and credit risk.

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“…A firm's good earnings forecasts are positive information for nonrival firms and negative information for rival firms in the same industry (Kim, Lacina, and Park ). Olsen and Dietrich () find that suppliers’ stock prices react to customers’ monthly sales announcements, whereas Pandit, Wasley, and Zach () find similar results for quarterly earnings announcements. Eshleman and Guo () study downstream information flow, that is, information transfer from suppliers to their customers, and find that quarterly earnings announcements of suppliers contain information about their customers’ earnings.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 97%

“…Suppliers’ earning announcements contain information about their customers’ earnings (Eshleman and Guo ). Suppliers’ stock prices react to their customers’ sales (Olsen and Dietrich ) and earning (Pandit, Wasley, and Zach ) announcements. Investors’ limited attention leads to delays in information flow and return predictability across customer–supplier links (Cohen and Frazzini ).…”

Section: Introductionmentioning

confidence: 99%

Managerial Learning Through Customer–supplier Links

Fuller

Yildiz

2018

J of Financial Research

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We provide empirical evidence that supplier firms’ managers learn new information from their customers’ stock prices when they make investment, long‐term financing, short‐term financing, and dividend decisions. Our findings provide novel empirical evidence that the stock market has real effects on the economy through customer–supplier links. Our results indicate that managerial learning is not confined to peers’ or firms’ own stock prices but is a more comprehensive process that includes cross‐industry learning. Furthermore, managerial learning is not limited to investment decisions but is also present in long‐term financing, short‐term financing, and dividend decisions.

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Information Externalities along the Supply Chain: The Economic Determinants of Suppliers’ Stock Price Reaction to Their Customers’ Earnings Announcements*

Cited by 217 publications

References 44 publications

The externalities of credit default swaps on stock return synchronicity

The externalities of credit default swaps on stock return synchronicity

Customer and Supplier Portfolios: Can Credit Risks be Managed Through Supply Chain Relationships?

Managerial Learning Through Customer–supplier Links

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