Speed Matters: Limited Attention and Supply-Chain Information Diffusion
69 Pages Posted: 3 Mar 2017 Last revised: 19 Dec 2020
Date Written: November 1, 2017
We develop a measure of the speed of firm-level information diffusion, study how it is affected by limited attention, and examine its effect on real corporate decisions. Using local flu epidemics as exogenous attention shocks, we show that inattention from dual-covering analysts and cross-holding institutions reduces the speed of information diffusion from customer to supplier stock prices. We find that the speed of information diffusion along the supply chain affects the price feedback effect for corporate investment decisions and facilitates coordination between customers and suppliers. Our findings demonstrate that co-attention from key market participants affects information efficiency and generates real economic outcomes.
Keywords: Information Diffusion, Limited Attention, Supply Chains, Firm Investment
JEL Classification: G14, G24, G31, L14
Suggested Citation: Suggested Citation