The Power of Economic Networks: Investor Recognition through Supply-Chain Relationships

Abstract

We show that firms gain visibility and increase their shareholder base through their supply chain relationships with large and well-known trading partners. After the relationship is reported, supplier firms enjoy a boost in investor recognition, evidenced by more institutional investors holding the firms’ stocks, more intensive news coverage, and more EDGAR searches for the firms’ SEC filings. We show that managers strategically disclose relationships to improve their firms’ visibility. This reduces advertising expenses, increases sales, and consequently improves profitability. Our findings high-light the supply-chain network as an important channel through which small and young firms gain investor recognition and improve their operating environment.

Keywords: Customer-Supplier Relationship; Investor Recognition; Disclosure, Investor Recognition, Economic Network

JEL Classification: L14; G11