The bright side of supplier concentration: Investor attitudes towards the reopening policy in China

Abstract

Supplier concentration (SUC) has disadvantage of vulnerability along with cost savings and efficiency. While current scholarship focus on the vulnerability of firms with centralized suppliers during the COVID-19 epidemic, there is no empirical study that explores the impact of post-disaster SUC on firm value as countries removing regional isolation policy. I focus on the impact of COVID-19 reopening policy on investor attitudes towards SUC after the resolution of a supply chain disruption crisis. I try to examine whether investors still perceive SUC as a risk signal or as a positive signal for rapid recovery. Using the event shock of China's reopening announcement and data on A-share listed companies, I find that SUC has a positive impact on cumulative abnormal returns at reopening. I also find that positive effect of SUC is more prominent for firms that benefit from a larger reduction in transaction costs due to the reopening policy. I also analyze the moderating effect and find that information intermediaries such as analysts and media attention amplify the positive effects of SUC. My research provides new perspective on achieving post-disaster value enhancement through SUC.