When Ignorance Is Not Bliss: An Empirical Analysis of Subtier Supply Network Structure on Firm Risk
| Autor: | Jun Li, Di Wu, Yixin (Iris) Wang, Ravi Anupindi |
|---|---|
| Rok vydání: | 2021 |
| Předmět: |
Supply chain risk management
Structure (mathematical logic) 050208 finance Strategy and Management Financial risk media_common.quotation_subject 05 social sciences Ignorance Management Science and Operations Research Degree (temperature) Microeconomics BLISS Firm risk 0502 economics and business Supply network Business 050207 economics computer computer.programming_language media_common |
| Zdroj: | Management Science. 67:2029-2048 |
| ISSN: | 1526-5501 0025-1909 |
| DOI: | 10.1287/mnsc.2020.3645 |
| Popis: | Using a multitier mapping of supply-chain relationships constructed from granular global, firm-to-firm supplier–customer linkages data, we quantify the degree of financial risk propagation from the supply network beyond firms’ direct supply-chain connections and isolate structural network properties serving as significant moderators of risk propagation. We first document a baseline fact: a significant proportion of tier-2 suppliers are shared by tier-1 suppliers. We then construct two simple metrics to capture the degree of tier-2 sharing and disentangle its effect from tier-2 suppliers’ own risks. We show that the focal firms’ risk levels are significantly related to the proportion of shared tier-2 suppliers in their supply network, and the effect becomes monotonically stronger as their tier-2 suppliers become more highly shared. Finally, we uncover causal relationships behind these associations using a new source of exogenous, idiosyncratic risk events in an event study setting. We show that, as tier-2 suppliers are impacted by these events, focal firms experience negative abnormal returns, the magnitude of which is significantly larger when the impacted tier-2 suppliers are more heavily shared. Overall, our study uncovers the subtier network structure as an important risk source for the focal firm, with the degree of tier-2 sharing as the main moderator. Our results also provide the microfoundation for a common structure in idiosyncratic risks and suggest the importance of incorporating the effect of subtier supply network structure in the portfolio-optimization process. This paper was accepted by Vishal Gaur, operations management. |
| Databáze: | OpenAIRE |
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