Implications of limited investor attention to customer–supplier information transfers

Abstract

• I study information spillover effects around and following customer earnings announcements for supplier firms. • There is a direct relation between supplier returns and customer earnings surprises. • The post-earnings announcement drift in customers contributes to the cross-firm reaction. • The predictability of customer earnings surprises for supplier returns is not entirely due to limited investor attention. 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 1083 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 the earnings information of the customers, suggesting that customer earnings announcements convey information to suppliers. I also find that the post-earnings announcement drift in customers contributes to the cross-firm reaction, and the predictability of customer earnings surprises for suppliers’ future returns is not entirely due to limited investor attention.