The Power of Economic Networks: Investor Recognition through Supply-Chain Relationship Disclosures

We show that firms gain visibility and shareholder base through economic relationships with reputable trading partners. We find that supplier firms enjoy a boost in news coverage and a subsequent reduction in advertising expenses when they disclose trading relationships with large and well-known customer firms. After relationship disclosure, supplier firms are more likely to be held by the same institutional investor and covered by the same analyst following their customer firms. We show that managers are aware of this effect and selectively disclose relationships that benefit their firms' visibility. Our findings highlight the role of product-market network as an important channel through which small and young firms gain investor recognition and improve their operating environment.