We document that the likelihood of an analyst following a supplier–customer firm pair increases with the strength of the economic ties along the supply chain, as measured by the percentage of the supplier’s sales to the customer. Analysts who follow a covered firm’s customer provide more accurate earnings forecasts for the supplier firm than analysts who do not. While both types of analysts respond to and incorporate the earnings news from the customer firm into their revisions of the supplier’s earnings forecasts, supplier–customer analysts exhibit a larger improvement in their forecast accuracy for the supplier subsequent to the customer’s earnings announcements, when compared to other analysts. Overall, the evidence suggests that supplier–customer analysts benefit from the informational complementarities along the supply chain and improve their forecast accuracy as a result.
Review of Accounting Studies – Springer Journals
Published: Jun 10, 2014
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