Learning from Customers: Corporate Innovation along the Supply Chain

AFA 2015 Boston Meetings

47 Pages Posted: 5 Oct 2014 Last revised: 10 Aug 2015

Yongqiang Chu

University of South Carolina - Darla Moore School of Business

Xuan Tian

Tsinghua University - PBC School of Finance

Wenyu Wang

Indiana University - Kelley School of Business - Department of Finance

Date Written: August 8, 2015

Abstract

This paper studies the effect of timely feedback along the supply chain on motivating innovation. We use the geographical distance between a supplier and its major customers to capture the ease and intensity of timely feedback from customers to their suppliers. To establish causality, we explore plausibly exogenous variation in distance caused by customer headquarters relocations. In a difference-in-differences framework, we show that timely feedback from customers has a positive effect on supplier innovation. The effect is stronger when the customers are more innovative themselves and are within closer technology proximity with the suppliers. Our paper provides the first analysis that tests the feedback effect proposed in Manso (2011) and sheds new light on the real effect of customer-supplier relationship along the supply chain.

Keywords: Feedback effect; Innovation; Incentive Schemes; Supply Chain

JEL Classification: G31, O31

Suggested Citation

Chu, Yongqiang and Tian, Xuan and Wang, Wenyu, Learning from Customers: Corporate Innovation along the Supply Chain (August 8, 2015). AFA 2015 Boston Meetings. Available at SSRN: https://ssrn.com/abstract=2505029 or http://dx.doi.org/10.2139/ssrn.2505029

Yongqiang Chu (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States
803-777-5960 (Phone)

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Wenyu Wang

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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