The Power of Economic Networks: Investor Recognition through Supply-Chain Relationship Disclosures
49 Pages Posted: 4 Mar 2015 Last revised: 1 Aug 2019
Date Written: June 1, 2016
We show that firms gain visibility and shareholder base through disclosing supply-chain relationships with large and well-known trading partners in their SEC filings. Using a novel research design that focuses on the investor recognition effect of disclosures, we find a significant improvement in supplier firms’ investor recognition after they voluntarily disclose relationships with principal customers in SEC filings even though the relationships have already been mentioned in other public sources. Importantly, we find that this improvement in investor recognition leads to a significant increase in future operating cash flows. Our findings highlight the role of the product-market 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
JEL Classification: L14; G11
Suggested Citation: Suggested Citation