Implications of limited investor attention to customer-supplier information transfers

Abstract

This study focuses on the market reaction to information transfers from economically linked customers. I examine whether investors have limited attention with respect to the information contained in customer earnings announcements for suppliers. Using 1,083 unique customer-supplier relationships for the period 1983–2011, I find that the cumulative abnormal returns of a supplier surrounding and following linked customers’ earnings announcements are positively related to earnings information of the customers. The results provide evidence that customer earnings announcements convey information for suppliers, suggesting that limited investor attention to customer-supplier information transfers from earnings announcements generates predictable returns across linked firms.