Supply Chain Information Signaling and Capital Market

Abstract

Empirical and anecdotal evidence shows that public firms may take into account capital market reaction when making their operational decisions. The conventional operations literature has mainly focused on maximizing firms profits. However, when investors do not have complete information, their valuation may deviate from the firms true profitability. This chapter discusses how the presence of asymmetric information and the managers market value interest may influence their operational decisions. It is shown that operational distortions may arise in equilibrium that can hurt the firms true performance. Then, a supply chain mechanism is presented that can effectively signal the internal information to the investors and alleviate the market friction. The chapter also discusses several related studies that enrich the literature in the operations and finance interface.