Wisdom of Crowds along the Supply Chain

Jeong-Bon Kim, Albert Mensah, Vicki Wei Tang and M.H. Franco Wong
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Jeong-Bon Kim: SFU.ca - Simon Fraser University = Université Simon Fraser
Albert Mensah: HEC Paris - Ecole des Hautes Etudes Commerciales
Vicki Wei Tang: GU - Georgetown University [Washington]
M.H. Franco Wong: University of Toronto

Working Papers from HAL

Abstract: Using the Twitter setting, we examine whether social media data about trade debtors' prospects are informative for assessing their creditworthiness. We employ a regression discontinuity design to exploit the random, discrete variation in the debtors' consumer satisfaction scores around discontinuities created by exogenous, pre-determined rounding rules. We document an increase in supplier-awarded trade credit (by about 1.3 [0.4] percent of the cost of goods sold [assets]) in response to a rounding-induced 1-point surge in these scores, which have a 0-100 range. In the cross-section, we find that this effect holds mainly when: (i) trade debtors fall within the "inconclusive region" of a key traditional financial health metric; (ii) uncertainties about trade debtors' future earnings and future cash flows are high; (iii) there is no previous debtor-supplier relationship; and (iv) debtors have strong negotiation power. Overall, our evidence suggests that suppliers use alternative data to mitigate uncertainties about trade debtors' prospects.

Keywords: supply chain; trade credit; information asymmetry; alternative data; social media (search for similar items in EconPapers)
Date: 2023-08-30
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04415431

DOI: 10.2139/ssrn.4567815

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