We examine whether sharing similar business strategies between suppliers and customers increases suppliers’ investment efficiency. Using a data set of U.S. supplier-customer dyads, we posit and find that sharing strategic objectives with major customers is associated with higher-quality supplier investment decisions. Specifically, strategic similarity between supply chain partners is associated with a lower likelihood of underinvestment and overinvestment by suppliers. We also find that strategic similarity improves supplier investment decisions when the customer’s information environment is weak. In addition, our cross-sectional analyses show that strategic similarity is associated with higher investment efficiency for suppliers in durable goods industries and for those with customers who are likely to switch to other suppliers.
AlmeidaH.CampelloM. (2007). Financial constraints, asset tangibility, and corporate investment. Review of Financial Studies, 20(5), 1429–1460. https://doi.org/10.1093/rfs/hhm019
2.
AndersonE.WeitzB. (1989). Determinants of continuity in conventional industrial channel dyads. Marketing Science, 8(4), 310–323. https://doi.org/10.1287/mksc.8.4.310
3.
AndersonM. C.BankerR. D.JanakiramanS. N. (2003). Are selling, general, and administrative costs “sticky”. Journal of Accounting Research, 41(1), 47–63. https://doi.org/10.1111/1475-679x.00095
4.
BaeG. S.ChoiS. U.DhaliwalD. S.LamoreauxP. T. (2017). Auditors and client investment efficiency. The Accounting Review, 92(2), 19–40. https://doi.org/10.2308/accr-51530
5.
BanerjeeS.DasguptaS.KimY. (2008). Buyer–supplier relationships and the stakeholder theory of capital structure. The Journal of Finance, 63(5), 2507–2552. https://doi.org/10.1111/j.1540-6261.2008.01403.x
6.
BentleyK. A.OmerT. C.SharpN. Y. (2013). Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, 30(2), 780–817. https://doi.org/10.1111/j.1911-3846.2012.01174.x
7.
Bentley-GoodeK. A.NewtonN. J.ThompsonA. M. (2017). Business strategy, internal control over financial reporting, and audit reporting quality. AUDITING: A Journal of Practice & Theory, 36(4), 49–69. https://doi.org/10.2308/ajpt-51693
8.
BiddleG. C.HilaryG.VerdiR. S. (2009). How does financial reporting quality relate to investment efficiency?Journal of Accounting and Economics, 48(2–3), 112–131. https://doi.org/10.1016/j.jacceco.2009.09.001
9.
ChangH.LiuS.MashruwalaR. (2022). Customer bargaining power, strategic fit, and supplier performance. Production and Operations Management, 31(4), 1492–1509. https://doi.org/10.1111/poms.13627
10.
ChengM.DhaliwalD.ZhangY. (2013). Does investment efficiency improve after the disclosure of material weaknesses in internal control over financial reporting?Journal of Accounting and Economics, 56(1), 1–18. https://doi.org/10.1016/j.jacceco.2013.03.001
ChoiJ. K.HannR. N.SubasiM.ZhengY. (2020). An empirical analysis of analysts’ capital expenditure forecasts: Evidence from corporate investment efficiency. Contemporary Accounting Research, 37(4), 2615–2648. https://doi.org/10.1111/1911-3846.12597
13.
ChristensenB. E.ClineB. N.LundstromN. G.YoreA. S. (2024). Do auditors view off-the-clock misbehavior by company leadership as a signal of tone at the top?The Accounting Review, 99(5), 1–26. https://doi.org/10.2308/tar-2021-0026
14.
CrawfordS.HuangY.LiN.YangZ. (2020). Customer concentration and public disclosure: Evidence from management earnings and sales forecasts. Contemporary Accounting Research, 37(1), 131–159. https://doi.org/10.1111/1911-3846.12526
15.
DasA.NarasimhanR.TalluriS. (2006). Supplier integration—Finding an optimal configuration. Journal of Operations Management, 24(5), 563–582. https://doi.org/10.1016/j.jom.2005.09.003
DhaliwalD.JuddJ. S.SerflingM.ShaikhS. (2016). Customer concentration risk and the cost of equity capital. Journal of Accounting and Economics, 61(1), 23–48. https://doi.org/10.1016/j.jacceco.2015.03.005
19.
DixitA. K.PindyckR. S. (1994). Investment under uncertainty. Princeton.
20.
DongX.ChanK. C.CuiY.GuanJ. X. (2021). Strategic deviance and cash holdings. Journal of Business Finance & Accounting, 48(3/4), 742–782. https://doi.org/10.1111/jbfa.12487
21.
DongY.LiC.LiH. (2021). Customer concentration and M&A performance. Journal of Corporate Finance, 69, 102021. https://doi.org/10.1111/jbfa.12487
22.
DyerJ. H.SinghH. (1998). The relational view: Cooperative strategy and sources of interorganizational competitive advantage. The Academy of Management Review, 23(4), 660–679. https://doi.org/10.2307/259056
ElyasianiE.JiaJ. (2011). Performance persistence of closed-end funds. Review of Quantitative Finance and Accounting, 37(3), 381–408. https://doi.org/10.1007/s11156-010-0209-9
25.
EttlieJ. E. (1995). Product-process development integration in manufacturing. Management Science, 41(7), 1224–1237. https://doi.org/10.1287/mnsc.41.7.1224
26.
EvansD. S. (1987). The relationship between firm growth, size, and age: Estimates for 100 manufacturing industries. The Journal of Industrial Economics, 35(4), 567–581. https://doi.org/10.2307/2098588
García-LaraJ. M.OsmaB. G.PenalvaF. (2016). Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), 221–238. https://doi.org/10.1016/j.jacceco.2015.07.003
29.
GuglerK. (2003). Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment. Journal of Banking & Finance, 27(7), 1297–1321. https://doi.org/10.1016/S0378-4266(02)00258-3
30.
GunasekaranA.PatelC.McGaugheyR. E. (2004). A framework for supply chain performance measurement. International Journal of Production Economics, 87(3), 333–347. https://doi.org/10.1016/j.ijpe.2003.08.003
31.
HabibA.HasanM. M. (2021). Business strategy and labor investment efficiency. International Review of Finance, 21(1), 58–96. https://doi.org/10.1111/irfi.12254
32.
HambrickD. C. (1983). Some tests of the effectiveness and functional attributes of miles and Snow’s strategic types. Academy of Management Journal. Academy of Management, 26(1), 5–26. https://www.jstor.org/stable/256132
HigginsD.OmerT. C.PhillipsJ. D. (2015). The influence of a firm’s business strategy on its tax aggressiveness. Contemporary Accounting Research, 32(2), 674–702. https://doi.org/10.1111/1911-3846.12087
HultT.KetchenD.ArrfeltM. (2007). Strategic supply chain management: Improving performance through a culture of competitiveness and knowledge development. Strategic Management Journal, 28(10), 1035–1052. https://doi.org/10.1002/smj.627
37.
HultT.KetchenD.SlaterS. (2004). Information processing, knowledge development, and strategic supply chain performance. Academy of Management Journal, 47(2), 241–253. https://doi.org/10.2307/20159575
38.
InderfurthK.SadriehA.VoigtG. (2013). The impact of information sharing on supply chain performance under asymmetric information. Production and Operations Management, 22(2), 410–425. https://doi.org/10.1111/j.1937-5956.2012.01372.x
39.
IttnerC.LarckerD.RajanM. (1997). The choice of performance measures in annual bonus contracts. The Accounting Review, 72(2), 231–255. https://www.jstor.org/stable/248554
40.
JapS. D. (1999). Pie-expansion efforts: Collaboration processes in buyer–supplier relationships. Journal of Marketing Research, 36(4), 461–475. https://doi.org/10.1177/002224379903600405
41.
JingJ.MyersL. A.NgJ.SuL. (2023). Customer referencing and capital market benefits: Evidence from the cost of equity. Contemporary Accounting Research, 40(2), 1448–1486. https://doi.org/10.1111/1911-3846.12850
42.
JonesJ. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193–228. https://doi.org/10.2307/2491047
43.
JoskowP. L. (1988). Asset specificity and the structure of vertical relationships: Empirical evidence. Journal of Law, Economics, & Organization, 4(1), 95–117. https://doi.org/10.1093/oxfordjournals.jleo.a036950
44.
KaleJ. R.ShahrurH. (2007). Corporate capital structure and the characteristics of suppliers and customers. Journal of Financial Economics, 83(2), 321–365. https://doi.org/10.1016/j.jfineco.2005.12.007
45.
KaplanS. N.ZingalesL. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints?The Quarterly Journal of Economics, 112(1), 169–215. https://doi.org/10.1162/003355397555163
46.
KetchenD. J.HultG. T. M. (2007). Bridging organization theory and supply chain management: The case of best value supply chains. Journal of Operations Management, 25(2), 573–580. https://doi.org/10.1016/j.jom.2006.05.010
47.
KetokiviM.MahoneyJ. T. (2020). Transaction cost economics as a theory of supply chain efficiency. Production and Operations Management, 29(4), 1011–1031. https://doi.org/10.1111/poms.13148
48.
KothariS. P.LeoneA. J.WasleyC. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197. https://doi.org/10.1016/j.jacceco.2004.11.002
49.
LangM. H.LundholmR. J. (1996). Corporate disclosure policy and analyst behavior. The Accounting Review, 71(4), 467–492. https://www.jstor.org/stable/248567
50.
LeeH. L.PadmanabhanV.WhangS. (1997). Information distortion in a supply chain: The bullwhip effect. Management Science, 43(4), 546–558. https://doi.org/10.1287/mnsc.43.4.546
51.
LinY.-E.LiY.-W.ChengT. Y.LamK. (2021). Corporate social responsibility and investment efficiency: Does business strategy matter?International Review of Financial Analysis, 73, 101585. https://doi.org/10.1016/j.irfa.2020.101585
52.
McCarthyT. M.GolicicS. L. (2002). Implementing collaborative forecasting to improve supply chain performance. International Journal of Physical Distribution & Logistics Management, 32(6), 431–454. https://doi.org/10.1108/09600030210437960
53.
McNicholsM. F.StubbenS. R. (2008). Does earnings management affect firms’ investment decisions?The Accounting Review, 83(6), 1571–1603. https://doi.org/10.2308/accr.2008.83.6.1571
54.
MilesR. E.SnowC. C. (2003). Organizational strategy, structure, and process. Stanford University Press.
55.
MilesR. E.SnowC. C.MeyerA. D.ColemanH. J.Jr. (1978). Organizational strategy, structure, and process. Academy of Management Review. Academy of Management, 3(3), 546–562. https://doi.org/10.2307/257544
56.
NarayananS.NarasimhanR.SchoenherrT. (2015). Assessing the contingent effects of collaboration on agility performance in buyer–supplier relationships. Journal of Operations Management, 33–34(1), 140–154. https://doi.org/10.1016/j.jom.2014.11.004
57.
NavissiF.SridharanV. G.KhedmatiM.LimE. K.EvdokimovE. (2017). Business strategy, over- (under-) investment, and managerial compensation. Journal of Management Accounting Research, 29(2), 63–86. https://doi.org/10.2308/jmar-51537
58.
NielsenB. B. (2010). Strategic fit, contractual, and procedural governance in alliances. Journal of Business Research, 63(7), 682–689. https://doi.org/10.1016/j.jbusres.2009.05.001
59.
PanditS.WasleyC. E.ZachT. (2011). Information externalities along the supply chain: The economic determinants of suppliers’ stock price reaction to their customers’ earnings announcements. Contemporary Accounting Research, 28(4), 1304–1343. https://doi.org/10.1111/j.1911-3846.2011.01092.x
RamanK.ShahrurH. (2008). Relationship-specific investments and earnings management: Evidence on corporate suppliers and customers. The Accounting Review, 83(4), 1041–1081. https://doi.org/10.2308/accr.2008.83.4.1041
63.
RanasingheD.HabibA. (2023). Strategic deviation and investment inefficiency. Australian Journal of Management, 49(4), 1–30. https://doi.org/10.1177/03128962231152764
SamaddarS.NargundkarS.DaleyM. (2006). Inter-organizational information sharing: The role of supply network configuration and partner goal congruence. European Journal of Operational Research, 174(2), 744–765. https://doi.org/10.1016/j.ejor.2005.01.059
66.
SchloetzerJ. D. (2012). Process integration and information sharing in supply chains. The Accounting Review, 87(3), 1005–1032. https://doi.org/10.2308/accr-10216
67.
ShipmanJ. E.SwanquistQ. T.WhitedR. L. (2017). Propensity score matching in accounting research. The Accounting Review, 92(1), 213–244. https://doi.org/10.2308/accr-51449
68.
SimatupangT. M.SridharanR. (2002). The collaborative supply chain. The International Journal of Logistics Management, 13(1), 15–30. https://doi.org/10.1108/09574090210806333
69.
TsaiH.-J.WuY.XuB. (2021). Does capital market drive corporate investment efficiency? Evidence from equity lending supply. Journal of Corporate Finance, 69, 102042. https://doi.org/10.1016/j.jcorpfin.2021.102042
70.
VachonS.HalleyA.BeaulieuM. (2009). Aligning competitive priorities in the supply chain: The role of interactions with suppliers. International Journal of Operations & Production Management, 29(4), 322–340. https://doi.org/10.1108/01443570910945800
71.
VincentK.HsuY.-C.LinH.-W. (2021). Investment styles and the multiple testing of cross-sectional stock return predictability. Journal of Financial Markets, 56, 100598. https://doi.org/10.1016/j.finmar.2020.100598
72.
WangQ.EttredgeM.HuangY.SunL. (2011). Strategic revelation of differences in segment earnings growth. Journal of Accounting and Public Policy, 30(4), 383–392. https://doi.org/10.1016/j.jaccpubpol.2011.05.001
73.
WilliamsonO. E. (1979). Transaction-cost economics: The governance of contractual relations. The Journal of Law and Economics, 22(2), 233–262. https://doi.org/10.1086/466942
ZhouH.BentonW. C. (2007). Supply chain practice and information sharing. Journal of Operations Management, 25(6), 1348–1365. https://doi.org/10.1016/j.jom.2007.01.009
76.
ZuX.KaynakH. (2012). An agency theory perspective on supply chain quality management. International Journal of Operations & Production Management, 32(4), 423–446. https://doi.org/10.1108/01443571211223086
