Common Suppliers and Stock Return co‐Movement: Evidence From China

ABSTRACT

This article investigates the impact of common suppliers on the stock return co‐movement of firms using a sample of Chinese listed firms. We find that firms with common suppliers show a higher stock return co‐movement. Common suppliers are an additional determinant of the correlation in future operating performance between paired firms. The effect of common suppliers is more pronounced in the period of worse market performance as well as for firms with closer size and geographical distance relative to their common supplier, higher purchasing proportions from common supplier, and no overseas common supplier. Finally, the channel analyses show that common suppliers can improve the common stock informativeness of firms and the consistency of investor attitudes and trading behaviors, which then increases the firms' stock return co‐movement. Overall, our results shed light on the role of supply chain in stock market performance.