Customers' tone in MD&A disclosure and suppliers' inventory efficiency: Evidence from China

This article examines whether and how customers' tone in MD&A disclosure affects suppliers' inventory efficiency. Using an unbalanced panel dataset compiled from multiple archival sources of Chinese-listed companies, we find that the more positive tone in MD&A disclosure of customers is associated with the higher efficient suppliers' inventory and the results still hold after a battery of robust tests. The customers' tone in MD&A disclosure affects supplier firms' inventory efficiency by reducing the bullwhip effect. In addition, we find that customers' tone in MD&A disclosure has a more pronounced effect on improving suppliers' inventory efficiency when the customers have more analyst coverage and when the suppliers have less bargaining power.