The Supply Chain Bullwhip Effect and Earnings Quality

Abstract

The Bullwhip Effect amplifies demand variations through a supply network. Accordingly, we expect that the Bullwhip Effect decreases earnings quality and increases the uncertainty of the public information available to stock investors and creditors. Based on a sample of US public firms from 1998 to 2011, we find that the Bullwhip Effect (measured as the firm-specific hierarchical position within its supply chain network) decreases earnings quality, increases stock return synchronicity, and increases credit spreads. The return synchronicity impact is more significant for firms facing higher information asymmetry and for firms that increase exposure to the Bullwhip Effect through proactive changes in their supply-chain position.