Speed Matters: Supply-Chain Information Diffusion and Price Feedback Effects

Abstract

This paper provides evidence of price feedback effects in a supply-chain setting using the speed with which information diffuses from customer to supplier stock prices to identify private supply-chain information in prices. We find that the speed of supply-chain information diffusion positively (negatively) affects the sensitivity of supplier investment to its own (customer’s) price. These results are consistent with learning from prices and suggest that supplier managers vary their reliance on their own versus their customer’s stock prices depending upon their relative price informativeness. Consistent with supplier managers using information in prices to make better investment decisions, we find that higher speed of supply-chain information diffusion predicts positive future supplier performance and enhances investment coordination between suppliers and customers.

Keywords: Supply Chains; Speed; Information Diffusion

JEL Classification: L14; G14; G24