Management Accounting Section Midyear Meeting

Inter-Firm Executive Connections in Supply Chains and Suppliers’ Voluntary Disclosures

• In Event: Supply Chain

Abstract

In this paper we examine how inter-firm executive social connections between suppliers and major customers help promote communication that facilitates supplier accuracy in voluntary disclosures and, also, operational efficiency. We also document supplier hiring strategies that improve private communication channels. Specifically, using a firm fixed-effects model, we show that suppliers provide more accurate revenue forecasts when their executives are socially connected to their major customers. This positive effect is reduced when the major customer is more transparent, as evidenced by release of more management forecasts, and when the supplier has greater bargaining power. We additionally document the following: that good news shared through social ties plays a stronger role in improving suppliers’ forecast accuracy than bad news, that suppliers enjoy higher inventory turnover when socially connected with major customers, and that social connections to the major customer’s marketing executives positively affect supplier’s sales forecast accuracy. We also provide evidence that suppliers strategically hire connected executives after establishing the supply chain relationship. Our results survive a battery of robustness tests. Taken together, our findings contribute to the literature in three areas: (1) the relationship between inter-firm executive social ties and capital market voluntary disclosures (2) how communication through private channels in supply chains improves supplier operating efficiency and (3) how suppliers shape their executive hiring strategies to benefit from information flows through inter-firm executive social ties.

Authors

• Yuan ji, The University of Texas at Arlington

• Xiaozhe Gu, University of Texas at Arlington

• Nandu J Nagarajan, University of Texas-Arlington

• Xiaoxiao Yu, Monash University