Customers' Forward-Looking Disclosures and Suppliers' Asymmetric Cost Behavior
Posted: 19 Jun 2019
Date Written: June 11, 2019
We examine the impact of customers’ forward-looking disclosures (FLD) contained in the Management Discussion and Analysis section (MD&A) of its 10-K filings on the degree of suppliers’ cost asymmetric behavior (i.e., cost stickiness) using computer-intensive techniques. We find that the degree of suppliers’ cost asymmetry is positively associated with their major customers’ FLD. Moreover, such a positive association is more pronounced when customers are more profitable or when customers have a more positive tone in their MD&A sections. Last, using a decision made by the United States Supreme Court on March 1st, 2005 as a quasi-natural experiment setting, we show that this positive association becomes stronger when FLD becomes more informative. Our findings indicate that suppliers adjust their cost management practices based on the forward-looking disclosures of their major customers along the supply chain.
Keywords: Cost asymmetry, Supply chain, Forward-looking disclosures, Textual analysis
JEL Classification: G31, G35, J51, M41
Suggested Citation: Suggested Citation