The Influence of Customer-Supplier Linkages on Stock Returns

42 Pages Posted: 5 Aug 2014 Last revised: 8 Aug 2014

See all articles by Jamie Alcock

Jamie Alcock

University of Oxford

Ramona Meyricke

UNSW Australia Business School, School of Risk & Actuarial Studies; CEPAR, University of New South Wales; Swiss Re, Australia

Date Written: August 5, 2013

Abstract

Investors in firms with concentrated supplier or customer bases should not assume that idiosyncratic shocks to an economically linked firm disappear in a well-diversified portfolio. Customer-supplier linkages between firms are a channel by which shocks to a single firm can influence the stock returns of other, linked firms. When the distribution of connectivity in a firm’s economic network is fat-tailed, individual firm-level shocks do not average out in aggregate. Consequently, firms with concentrated supplier or customer bases have higher average returns than firms with more diversified supplier or customer exposures.

Keywords: Customer-supplier linkages, economic linkages, diversification, stock returns

JEL Classification: G22, G23, C23

Suggested Citation

Alcock, Jamie and Meyricke, Ramona, The Influence of Customer-Supplier Linkages on Stock Returns (August 5, 2013). Available at SSRN: https://ssrn.com/abstract=2476250 or http://dx.doi.org/10.2139/ssrn.2476250

Jamie Alcock (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Ramona Meyricke

UNSW Australia Business School, School of Risk & Actuarial Studies ( email )

Room 2058 South Wing 2nd Floor
Quadrangle building, Kensington Campus
Sydney, NSW 2052
Australia

CEPAR, University of New South Wales ( email )

Level 6, Central Lobby (enter via East Lobby)
Australian School of Business Building
Sydney, New South Wales NSW 2052
Australia

Swiss Re, Australia ( email )

363 George St
Sydney, NSW 2000
Australia

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