Publication Type

Journal Article

Version

submittedVersion

Publication Date

6-2022

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.

Keywords

Corporate investment, short interest, supply chain partners

Discipline

Accounting | Corporate Finance | Finance and Financial Management

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Contemporary Accounting Research

Volume

39

Issue

2

First Page

1455

Last Page

1508

ISSN

0823-9150

Identifier

10.1111/1911-3846.12764

Publisher

Canadian Academic Accounting Association

Copyright Owner and License

Authors

Additional Files
care12764-sup-0001-tables.docx (67 kB)
Online appendix

Additional URL

https://doi.org/10.1111/1911-3846.12764

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