Stock Market Information and Innovative Investment in the Supply Chain

Corporate equity ownership, strategic alliances, and product market relationships

Lantian Liang, Ryan Williams and Steven Chong Xiao

The Review of Corporate Finance Studies, 2021, vol. 10, issue 4, 856-894

Abstract: We investigate whether suppliers adjust innovative supply chain investment following stock market signals about customers’ economic prospects. We show that suppliers increase R&D and investment in customer-related patents after positive market reactions to customers’ new product announcements. A battery of falsification tests suggest that spurious factors are unlikely to explain our results. Market signals about customers appear more important when information asymmetry is greater, when suppliers face greater competitive threats, and when suppliers are financially unconstrained. Our evidence suggests that the stock market can be a viable source of information to mitigate supply chain frictions. (JEL G14, G30, L14)

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rcorpf:v:10:y:2021:i:4:p:856-894.

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