Implications of Limited Investor Attention to Economic Links

This study focuses on the market reaction to information transfers from economically linked customers. In particular, I examine whether investors have limited attention with respect to the information contained in customer earnings announcements for suppliers. Using 1,083 unique customer-supplier relationships for the period 1983–2011, I find that the cumulative abnormal returns of a supplier surrounding and following its linked customer’s earnings announcement date is positively related to its linked customers’ unexpected earnings news, indicating that customer earnings announcements convey information for suppliers. Because customer-supplier links between firms are typically associated with information transfers, the results suggest that limited investor attention to the arrival of new information on economically linked firms leads to market underreactions.