Supply chain hierarchical position and firms' information quality
Publication Type
Journal Article
Publication Date
12-2020
Abstract
This study examines the relation between a firm's supply chain hierarchical position and its information quality. We predict that firms located in a more upstream position within the supply chain network are exposed to greater demand variance, thereby leading to decreased quality of reported earnings and greater uncertainty in the public information available to investors. Consistent with this prediction, we find that firm's vertical position in the supply chain network is negatively associated with its information quality (i.e., poorer earnings quality and higher stock return synchronicity). Our results are robust to the matched sample analysis, residual analysis, and alternative measures of information quality. We further show that the positive relation between firm's hierarchical position and stock return synchronicity is more pronounced for firms facing higher information asymmetry. Overall, our findings suggest that a more upstream position in the supply chain network entails not only operational costs associated with amplified demand uncertainty but also costs related to the quality of reported information on which capital providers and other stakeholders rely.
Keywords
Supply chain hierarchy, Bullwhip effect, Demand uncertainty, Earnings quality, Stock return synchronicity
Discipline
Databases and Information Systems | Operations and Supply Chain Management
Research Areas
Information Systems and Management
Publication
Journal of Financial Stability
Volume
51
First Page
1
Last Page
13
ISSN
1572-3089
Identifier
10.1016/j.jfs.2020.100815
Publisher
Elsevier
Citation
BAI, Xuelian; FANG, Ruirui; HENRY, Elaine; and HU, Nan.
Supply chain hierarchical position and firms' information quality. (2020). Journal of Financial Stability. 51, 1-13.
Available at: https://ink.library.smu.edu.sg/sis_research/8042
Copyright Owner and License
Authors
Additional URL
https://doi.org/10.1016/j.jfs.2020.100815