Customers' Forward-Looking Disclosures and Suppliers' Asymmetric Cost Behavior

Posted: 19 Jun 2019

See all articles by Nan Hu

Nan Hu

Stevens Institute of Technology - School of Business; Xi'an Jiaotong University (XJTU) - School of Management

Peng Liang

Xi'an Jiaotong University (XJTU) - School of Management

Date Written: June 11, 2019

Abstract

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

Hu, Nan and Hu, Nan and Liang, Peng, Customers' Forward-Looking Disclosures and Suppliers' Asymmetric Cost Behavior (June 11, 2019). Available at SSRN: https://ssrn.com/abstract=3402402

Nan Hu (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Peng Liang

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

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