The Supply Chain Bullwhip Effect and Earnings Quality

42 Pages Posted: 5 Dec 2015 Last revised: 6 Dec 2015

See all articles by Elaine Henry

Elaine Henry

Stevens Institute of Technology - School of Business

Nan Hu

Stevens Institute of Technology - School of Business

Ling Liu

University of Wisconsin Eau Claire

Xuelian Bai

Xi'an Jiaotong University (XJTU)

Date Written: December 3, 2015

Abstract

The Bullwhip Effect amplifies demand variations through a supply network. Accordingly, we expect that the Bullwhip Effect decreases earnings quality and increases the uncertainty of the public information available to stock investors and creditors. Based on a sample of US public firms from 1998 to 2011, we find that the Bullwhip Effect (measured as the firm-specific hierarchical position within its supply chain network) decreases earnings quality, increases stock return synchronicity, and increases credit spreads. The return synchronicity impact is more significant for firms facing higher information asymmetry and for firms that increase exposure to the Bullwhip Effect through proactive changes in their supply-chain position.

Keywords: bullwhip effect, earnings quality, stock return synchronicity, CDS spreads

JEL Classification: M41

Suggested Citation

Henry, Elaine and Hu, Nan and Liu, Ling and Bai, Xuelian, The Supply Chain Bullwhip Effect and Earnings Quality (December 3, 2015). Available at SSRN: https://ssrn.com/abstract=2698905 or http://dx.doi.org/10.2139/ssrn.2698905

Elaine Henry

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Nan Hu (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Ling Liu

University of Wisconsin Eau Claire ( email )

Eau Claire, WI 54702
United States

Xuelian Bai

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

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