Speed Matters: Limited Attention and Supply Chain Information Diffusion
Abstract
We develop a measure of the speed of firm-level information diffusion, study how it is affected by limited attention, and examine its effect on real corporate decisions. Using local flu epidemics as exogenous attention shocks, we show that inattention from dual-covering analysts and cross-holding institutions reduces the speed of information diffusion from customer to supplier stock prices. We find that the speed of information diffusion along the supply chain affects the price feedback effect for corporate investment decisions and facilitates coordination between customers and suppliers. Our findings demonstrate that coattention from key market participants affects information efficiency and generates real economic outcomes.
This paper was accepted by Camelia Kuhnen, finance.
Funding: L. Cen acknowledges financial support from the Chinese University of Hong Kong and General Research Fund [Grant 14504920] from the Hong Kong Research Grants Council.
Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00291.
