|
Information Externalities in Capital Markets: The Economic Determinants of Suppliers’ Stock Price Reaction to Their Major Customers’ Information Events
Shailendra Pandit, The Ohio State University
Charles Wasley, University of Rochester
Tzachi Zach, Washington University in St. Louis
ABSTRACT. We investigate the economic determinants of the information externalities supplier firms experience at the time of their major customers’ information events. We take the existence of such information externalities as given and proceed to test hypotheses about their economic magnitude. We find that the information externality suppliers experience when their major customers’ release news is increasing in the: (1) customer’s seasonally-adjusted change cost of goods sold, (2) magnitude of information disclosed by the customer, (3) strength of the economic bond between the supplier and its customer and (4) supplier’s market power relative to other firms in its industry. Our results are evidence of significant information externalities between suppliers and major customers. More importantly, we identify several determinants of these externalities. Our findings suggest that such effects are not limited to the same industry but also extend to firms belonging to different industries.
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
Back to Session Listing
|