Customer Referencing and Capital Market Benefits: Evidence from the Cost of Equity

68 Pages Posted: 28 Apr 2020

See all articles by Jiao Jing

Jiao Jing

Hong Kong Polytechnic University

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Lixin (Nancy) Su

Department of Accountancy, Lingnan University

Date Written: April 1, 2020

Abstract

Customer referencing refers to the phenomenon whereby a firm discloses its connections with reputable customers in order to improve its own reputation. Consistent with this disclosure increasing investor attention and providing customer certification, we find that supplier firms enjoy a lower cost of equity when they engage in customer referencing. In cross-sectional tests, we find that the benefits of customer referencing are more pronounced for supplier firms: i) without reputable major customers, ii) whose referenced customer’s reputation greatly exceeds their own, iii) facing higher competition, or (iv) that supply a larger proportion of the referenced customer’s products. Overall, our study provides evidence that communicating inter-organizational connections to investors can bring capital market benefits to the disclosing firms.

Keywords: customer referencing; customer reputation; cost of equity

JEL Classification: M40; M41

Suggested Citation

Jing, Jiao and Myers, Linda A. and Ng, Jeffrey and Su, Lixin (Nancy), Customer Referencing and Capital Market Benefits: Evidence from the Cost of Equity (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3568567 or http://dx.doi.org/10.2139/ssrn.3568567

Jiao Jing

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Lixin (Nancy) Su

Department of Accountancy, Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

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