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

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jfs.2020.100815

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