Supply chain hierarchical position and firms’ information quality

Xuelian Bai, Ruirui Fang, Elaine Henry and Nan Hu

Journal of Financial Stability, 2020, vol. 51, issue C

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 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1572308920301182
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:51:y:2020:i:c:s1572308920301182

DOI: 10.1016/j.jfs.2020.100815

Access Statistics for this article

Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

More articles in Journal of Financial Stability from Elsevier
Bibliographic data for series maintained by Catherine Liu ().