Offshore Sales Networks and Stock Return Predictability

43 Pages Posted: 25 Sep 2019

See all articles by John (Jianqiu) Bai

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business

Priya Garg

University of Massachusetts Boston

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance

Date Written: September 17, 2019

Abstract

Based on 10-K textual analysis, we assemble firm-level offshore sales networks (OSN) and find strong return predictability among industry participants that have overlapping offshore sales activities. This intra-industry return predictability based on offshore sales networks is distinct from that along several previously documented economic linkages (e.g., industry momentum, technological links, and standalone vs conglomerate firms). A long-short strategy that exploits the similarity of offshore sales networks yields a monthly alpha of 1.1 percentage points. Moreover, we find that the effect is stronger for firms that receive low investor attention, issue hard-to-read 10-Ks, and pose high arbitrage costs. Our results highlight important asset pricing implications of the commonality of corporate offshore activities, and are broadly consistent with sluggish price adjustment caused by investors’ inattention to offshore networks.

Keywords: offshoring, offshore operations, output network, stock returns, limited attention

Suggested Citation

Bai, John (Jianqiu) and Garg, Priya and Wan, Chi, Offshore Sales Networks and Stock Return Predictability (September 17, 2019). Available at SSRN: https://ssrn.com/abstract=3455426 or http://dx.doi.org/10.2139/ssrn.3455426

John (Jianqiu) Bai (Contact Author)

Northeastern University - D'Amore-McKim School of Business ( email )

220 B RP
Boston, MA 02115
United States

Priya Garg

University of Massachusetts Boston ( email )

Boston, MA 02125
United States
8579997406 (Phone)

HOME PAGE: http://https://phdcorporate.wordpress.com

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance ( email )

Boston, MA 02125
United States

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