Does the Bullwhip Matter Economically? A Cross-Sectional Firm-Level Analysis

Abstract

This paper investigates whether the bullwhip has economic consequences at the firm level. In particular, we examine the relation between the bullwhip and various accounting/financial performance measures including equity returns, cash flows, earnings, and earnings attributes such as earnings quality and earnings persistence, using a large panel of cross-sectional firm-level data. Performance is measured both in terms of first-moment mean effects and second-moment volatility effects. Contrary to the maintained assumption of economics and operations management scholars, our analysis yields results that are inconsistent with the notion that the bullwhip has significant negative economic consequences at the firm level. In particular, we find almost no significant statistical/economic relations between accounting/financial measures of profitability and the bullwhip, both with and without covariate controls.