Management Accounting Section Midyear Meeting

The Informational Role of Board External Connections in Mitigating Demand Information Distortions Along Supply Chains

• In Event: Interfirm Relationships

Abstract

In this paper, we examine whether directors' external connections (DEC) can mitigate the negative effect of supply chain demand information distortions on firm performance. We conjecture that DEC improves management's information set for firms with higher supply chain hierarchy positions (SCHP) about the external environment, especially future demand. We document that DEC provides management with valuable information to directly improve and mitigate the negative impact of demand information distortions on operating efficiency. We perform several mechanism tests to support our main informational role hypothesis. We document that DEC not only directly improves management’s forecast ability but also moderates the adverse effect of SCHP on management forecast accuracy. We also show that firms with higher SCHP benefit more from DEC in managing demand uncertainty using operation slack.

Authors

• Long Thai Bui, The University of Texas at Arlington

• Nandu J. Nagarajan, The University of Texas at Arlington