How do Suppliers Benefit from Customers’ Voluntary Disclosure? The Effect of Customers’ Earnings Guidance on Upstream Firms’ Investment Efficiency

54 Pages Posted: 13 Jul 2021

See all articles by Peng-Chia Chiu

Peng-Chia Chiu

The Chinese University of Hong Kong, Shenzhen

Lili Jiu

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law

Po-Hsiang Yu

National Chung Hsing University

Date Written: July 8, 2021

Abstract

We explore whether and how the issuance of customers’ financial forward-looking information affects the investment efficiency of their upstream firms. Using earnings guidance as a proxy for forward-looking information, we find that firms wherein customers disclose earnings forecasts invest more efficiently than those where customers withhold forward-looking information. Our findings hold after controlling for a set of firm characteristics, employing alternative model specifications and measurements, and using the 2011 Thailand flood as a quasi-experiment. Further analyses offer support that the positive impact of customers’ earnings guidance on upstream firms’ investment efficiency is stronger for customers issuing more informative, disaggregated, and accurate forecasts and suppliers with weaker bargaining power. We also observe an asymmetric response of suppliers’ investments toward customers’ good-news versus bad-news forecasts. Furthermore, by conducting a textual-based analysis, we find that suppliers’ investment efficiency increases with more embedded supply chain relevant information in customers’ earnings guidance reports. Overall, our findings suggest that suppliers benefit from customers’ earnings guidance to better assess their investment decisions, thereby achieving greater investment efficiency.

Keywords: Supply chain; Investment efficiency; Voluntary disclosure; Management earnings forecast; Textual analysis

JEL Classification: D22; G38; L15; M41

Suggested Citation

Chiu, Peng-Chia and Jiu, Lili and Yu, Po-Hsiang, How do Suppliers Benefit from Customers’ Voluntary Disclosure? The Effect of Customers’ Earnings Guidance on Upstream Firms’ Investment Efficiency (July 8, 2021). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3884314

Peng-Chia Chiu

The Chinese University of Hong Kong, Shenzhen ( email )

Lili Jiu (Contact Author)

Hong Kong Baptist University (HKBU) – Department of Accountancy and Law ( email )

Hong Kong

Po-Hsiang Yu

National Chung Hsing University ( email )

Taichung, 402
Taiwan

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