Publication Type

Conference Paper

Version

acceptedVersion

Publication Date

7-2015

Abstract

Short interest contains valuable information about a firm’s business fundamentals. We investigate whether such information affects business partners’ real investment decisions in the supply-chain setting. We predict and find that a supplier’s future investments (including inventory, R&D, and tangible asset investments) decrease with its customer’s current short interest. This negative relation is stronger when the supplier faces greater difficulty in assessing its customer’s business fundamentals and when short interest is more likely to indicate longlasting deterioration in the customer’s fundamentals. Additional analysis does not support the alternative explanation that the supplier adjusts investments in response to unfavorable information obtained via private communication with its customer. We also find that suppliers who are more responsive to the customers’ short interest in reducing investments experience weaker wealth transfer from these customers and better investment efficiency. Overall, our evidence suggests that customers’ short interest has significant information value in facilitating suppliers’ investment decisions, and suppliers who adjust their investments based on such information enjoy greater economic benefits.

Discipline

Accounting | Corporate Finance | Portfolio and Security Analysis

Research Areas

Financial Intermediation and Information

Publication

Conference of Chinese Accounting Professors’ Association of North America 8th CAPANA 2015, July 9-10

Publisher

BioScientifica

City or Country

Shanghai

Copyright Owner and License

Authors

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