Information Externalities and Voluntary Disclosure: Evidence from a Major Customer’s Earnings Announcement

52 Pages Posted: 29 Jan 2020

See all articles by Young Jun Cho

Young Jun Cho

Singapore Management University - School of Accountancy

Yongtae Kim

Santa Clara University - Leavey School of Business

Yoonseok Zang

Singapore Management University - School of Accountancy

Date Written: January 6, 2020

Abstract

We examine the relation between information externalities along the supply chain and voluntary disclosure. Information transfers from a major customer’s earnings announcement (EA) can substitute for its supplier’s disclosure. Conversely, if the customer’s EA increases uncertainties regarding the supplier’s future prospects, it can increase the demand for disclosure. After controlling for information incorporated in supplier returns, we find that the supplier is more likely to issue earnings guidance after the customer’s EA when the EA news deviates more from the market’s expectation. The positive effect of the customer’s news on earnings guidance is weaker when common investors, supply-chain analysts, or a common industry allow investors to better understand the value implications of the news, while the effect increases with the importance of the customer to the supplier. The effect is also stronger when the EA news is negative than positive. Collectively, the results suggest that supply-chain relationships influence voluntary disclosure.

Keywords: customer-supplier relationship, supply chain, earnings announcement, information transfers, earnings guidance, voluntary disclosure

Suggested Citation

Cho, Young Jun and Kim, Yongtae and Zang, Yoonseok, Information Externalities and Voluntary Disclosure: Evidence from a Major Customer’s Earnings Announcement (January 6, 2020). The Accounting Review, Forthcoming, Singapore Management University School of Accountancy Research Paper No. 2020-107, Available at SSRN: https://ssrn.com/abstract=3514909 or http://dx.doi.org/10.2139/ssrn.3514909

Young Jun Cho

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore

Yongtae Kim (Contact Author)

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-4667 (Phone)
(408) 554-2331 (Fax)

Yoonseok Zang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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