Customer's short positions and supplier's investment decisions

Short interest contains valuable information about a firm’s business fundamentals. We investigate whether such information affects business partners’ real investment decisions in the supply-chain setting. We predict and find that a supplier’s future investments (including inventory, R&D, and tan...

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Main Authors: CHEN, Xia, GONG, Guojin, LUO, Shuqing
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2015
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Online Access:https://ink.library.smu.edu.sg/soa_research/1869
https://ink.library.smu.edu.sg/context/soa_research/article/2896/viewcontent/ChenGongLuo_26June2015.pdf
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spelling sg-smu-ink.soa_research-28962020-07-30T06:54:38Z Customer's short positions and supplier's investment decisions CHEN, Xia GONG, Guojin LUO, Shuqing Short interest contains valuable information about a firm’s business fundamentals. We investigate whether such information affects business partners’ real investment decisions in the supply-chain setting. We predict and find that a supplier’s future investments (including inventory, R&D, and tangible asset investments) decrease with its customer’s current short interest. This negative relation is stronger when the supplier faces greater difficulty in assessing its customer’s business fundamentals and when short interest is more likely to indicate longlasting deterioration in the customer’s fundamentals. Additional analysis does not support the alternative explanation that the supplier adjusts investments in response to unfavorable information obtained via private communication with its customer. We also find that suppliers who are more responsive to the customers’ short interest in reducing investments experience weaker wealth transfer from these customers and better investment efficiency. Overall, our evidence suggests that customers’ short interest has significant information value in facilitating suppliers’ investment decisions, and suppliers who adjust their investments based on such information enjoy greater economic benefits. 2015-07-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1869 https://ink.library.smu.edu.sg/context/soa_research/article/2896/viewcontent/ChenGongLuo_26June2015.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Accounting Corporate Finance Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Accounting
Corporate Finance
Portfolio and Security Analysis
spellingShingle Accounting
Corporate Finance
Portfolio and Security Analysis
CHEN, Xia
GONG, Guojin
LUO, Shuqing
Customer's short positions and supplier's investment decisions
description Short interest contains valuable information about a firm’s business fundamentals. We investigate whether such information affects business partners’ real investment decisions in the supply-chain setting. We predict and find that a supplier’s future investments (including inventory, R&D, and tangible asset investments) decrease with its customer’s current short interest. This negative relation is stronger when the supplier faces greater difficulty in assessing its customer’s business fundamentals and when short interest is more likely to indicate longlasting deterioration in the customer’s fundamentals. Additional analysis does not support the alternative explanation that the supplier adjusts investments in response to unfavorable information obtained via private communication with its customer. We also find that suppliers who are more responsive to the customers’ short interest in reducing investments experience weaker wealth transfer from these customers and better investment efficiency. Overall, our evidence suggests that customers’ short interest has significant information value in facilitating suppliers’ investment decisions, and suppliers who adjust their investments based on such information enjoy greater economic benefits.
format text
author CHEN, Xia
GONG, Guojin
LUO, Shuqing
author_facet CHEN, Xia
GONG, Guojin
LUO, Shuqing
author_sort CHEN, Xia
title Customer's short positions and supplier's investment decisions
title_short Customer's short positions and supplier's investment decisions
title_full Customer's short positions and supplier's investment decisions
title_fullStr Customer's short positions and supplier's investment decisions
title_full_unstemmed Customer's short positions and supplier's investment decisions
title_sort customer's short positions and supplier's investment decisions
publisher Institutional Knowledge at Singapore Management University
publishDate 2015
url https://ink.library.smu.edu.sg/soa_research/1869
https://ink.library.smu.edu.sg/context/soa_research/article/2896/viewcontent/ChenGongLuo_26June2015.pdf
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