Focus on Research

June 8, 2012 12:47 pm

Something for the weekend

Small businesses tend to be wary of supplying to large and powerful retailers. Conventional wisdom has it that such larger companies can squeeze their dependent suppliers, demanding lower prices and requesting additional inventory.

But research from the Haas School of Business at the University of California at Berkeley suggests that in fact suppliers should count themselves lucky if they manage to win the custom of a large company.

Panos Patatoukas, an assistant professor of accounting says that those suppliers who have perhaps only a few, but nonetheless large customers, will enjoy a better performance. Dealing with a large and powerful customer he says allows a supplier to benefit from better stock valuation due to the efficiency of co-ordination and collaboration along the supply chain.

In his paper Customer-base concentration: implications for firm performance and capital markets, published in The Accounting Review, March 2012, Prof Patatoukas says that suppliers that have a concentrated customer base spent less on selling, had higher turnover rates of assets and lower gross margins.

Does the media immediately influence stock prices? According to the efficient stock market hypothesis, markets react immediately to new information and the stock price reflects this straight away. Consequently, it is difficult for the media to sway stock prices.

But Insead associate professor of finance Joe Peress has come up with an alternative theory. He has discovered from studying two decades’ worth of data that on those days when newspapers were unavailable due to strike action both the trading volume and price volatility of national stock markets fell.

Prof Peress says that the impact was most significant for small-capitalisation stocks that rely on the media for information much more than the large institutional investors.

“It is about access to news,” says Prof Peress.

He explains that the media plays a role in supporting market activity by supplying investors with “an information flow that enables them to feel comfortable about trading”.

In his studies, Prof Peress concentrated on four national newspaper strikes in France, Greece, Italy and Norway over a 20-year period. He discovered that on the day a strike occurred stock market turnover in the country concerned was an average 14 per cent lower and had the strongest effect on the shares of small and medium-sized companies. Trading volume was unchanged on the days before and after a strike.

In the future however, this may not be the case. Prof Peress points out that as more people turn to digital media for news the impact of strikes by traditional media outlets will reduce.

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