Anticipated Earnings Announcements and the Customer–Supplier Anomaly

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Journal of Accounting Research, ISSN: 1475-679X, Vol: 55, Issue: 3, Page: 709-741

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Joshua Madsen
Business, Management and Accounting; Economics, Econometrics and Finance
article description
I test whether the anticipation of earnings news stimulates acquisition of customer information and mitigates returns to the customer–supplier anomaly documented by Cohen and Frazzini (“Economic Links and Predictable Returns.” The Journal of Finance 63 (2008): 1977–2011). I find that attention to a firm's publicly disclosed customers increases shortly before the firm announces earnings, and that customer stock returns predict supplier stock returns shortly before, but not after, the supplier's earnings announcement. I further find some evidence that these predictable returns are increasing in the level of customer information acquisition. These results are unique to anticipated disclosure events and suggest that anticipation of supplier earnings announcements resolves investor limited attention to customer information and accelerates price discovery of customer news.