Managing crash risks through supply chain transparency: evidence from China

Abstract

Abstract Using data on Chinese non-financial listed firms covering 2009 to 2022, we explore the effect of supply chain transparency on stock price crash risk. Two proxies for supply chain transparency are constructed using the number of supply chain partners’ names and the proportion of their transactions disclosed in annual reports. The results reveal that enhancing supply chain transparency can decrease crash risk, specifically by mitigating tax avoidance and earnings management. Moreover, the analysis suggests that this risk-reduction effect is more prominent in companies where managers are more incentivized to hide negative information and investors possess superior abilities to acquire information. Interestingly, supplier transparency is more influential in mitigating crash risk than customer transparency. These findings emphasize the significance of supply chain transparency in managing financial risk.

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