Purpose This study investigates how the quality of internal information within a firm impacts its external stakeholders, focusing on the investment behaviors of suppliers. It aims to determine whether higher-quality demand information from a customer reduces uncertainty to increase investment in working capital (real options view) or reduces working capital levels to increase efficiency (operations view). Design/methodology/approach The study uses revenue guidance and financial restatements as a proxy for information quality shared with customers. I estimate the impact of information quality on investments in working capital for the customer, including inventory and accounts receivable. I also examine how customer information quality affects sensitivity to general uncertainty. Findings The study finds that suppliers invest more in working capital and exhibit reduced sensitivity to uncertainty when their customers provide high-quality demand information (real options view). Customer revenue forecasts are associated with lower expected volatility and higher levels of supplier investment. The results suggest that high-quality internal information facilitates better decision-making within the firm and extends to external stakeholders, such as suppliers. Originality/value This research empirically demonstrates the positive effects of internal information quality on external stakeholders, highlighting the role of high-quality demand information in reducing investment uncertainty for suppliers. It contributes to the literature on investment under uncertainty and supply chain information dynamics, providing evidence that publicly disclosed forecasts are a valid proxy for internal information quality.
Aaron Nelson (Mon,) studied this question.