Return Predictability in Corporate Bond Market Along the Supply Chain
52 Pages Posted: 21 Apr 2014 Last revised: 4 Jan 2017
Date Written: November 4, 2015
We explore how efficiently new information transmits along the supply chain in corporate bond market. We find a strong predictability of the lagged bond returns of customers for related firm- and industry-level future bond returns. This is likely due to investors’ inattention to cash-flow related news along the supply chain. Moreover, the lagged bond returns of suppliers only predict the future bond returns of those firms that have less bargaining power. Overall, our results suggest that information along the supply chain travels more gradually in the bond market than the stock market.
Keywords: Corporate Bonds; Cash Flow; Credit Rating; Credit Risk; Earnings; Information; Supply Chain; Return Predictability
JEL Classification: G12, G14
Suggested Citation: Suggested Citation