Spillover of Customer CDS on Supplier Disclosure

27 Pages Posted: 21 Nov 2018 Last revised: 17 Sep 2021

See all articles by Matthew C. Cedergren

Matthew C. Cedergren

Santa Clara University

Ting Luo

Tsinghua University

Jing Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Yue Zhang

Lingnan University

Date Written: September 16, 2021

Abstract

In this paper, we investigate the effect of customers' CDS referencing on suppliers' management forecasting activity. We argue that customers' CDS referencing increases the suppliers' business volatility and thus earning forecasting difficulty. At the same time, the information from customers' CDS market reduces investors' demand for the suppliers' disclosure and induces the suppliers to scale back their own disclosure. We find consistent evidence that firms that derive a greater proportion of their revenue from CDS-referenced customers tend to reduce their frequency of forecast issuance. This relationship is stronger when the supplier's business relies more on CDS-referenced customers (thus strengthening the effect of customer CDS referencing on suppliers' forecasting difficulty). In comparison, the relationship is weaker when customers have more analyst following (thus resulting in less incremental information produced by customer CDS referencing). Our findings suggest the spillover effects of customer CDS on supplier's disclosure along supply chains.

Keywords: supply chain; information spillover; corporate disclosure; credit default swaps

JEL Classification: M41, L14

Suggested Citation

Cedergren, Matthew C. and Luo, Ting and Wu, Jing and Zhang, Yue, Spillover of Customer CDS on Supplier Disclosure (September 16, 2021). Available at SSRN: https://ssrn.com/abstract=3274954 or http://dx.doi.org/10.2139/ssrn.3274954

Matthew C. Cedergren (Contact Author)

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Ting Luo

Tsinghua University ( email )

Weilun #201,School of Economics and Management
Beijing, 100084
China

Jing Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.jingwulab.org

Yue Zhang

Lingnan University ( email )

8 Castle Peak Road, Fu Tei
00000
Hong Kong
852-26168164 (Phone)

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