Capital Market Disclosure under Supplier Bargaining Considerations

Capital Market Disclosure under Supplier Bargaining Considerations

with Yasmin Kuhlmann, Sabrina Popow

Abstract:

In the past, supplier selection and contracting was exclusively a means of supply chain management. However, due to recent public and regulatory demands for extended transparency, disclosure interferes with supplier contracting. We highlight interaction effects resulting from sharing demand information with potential suppliers and extended financial disclosure. Our model is a two stage game in which supplier contracting, modeled as an information design game, precedes voluntary capital market disclosure. Sharing information in either of the two stages comes with externalities for the other. Demand information provided to suppliers leaks into the disclosure stage, as information shared once cannot be taken back. Capital market disclosure feeds back into the suppliers’ renegotiation decision, as it reveals proprietary bargaining information. We identify conditions under which extended capital market disclosure favors a supplier. We find that the buyer avoids contract renegotiation by withholding certain capital market information.