This study examines the spillover effect of constituency statutes along the supply chain. We posit that the enactment of constituency statutes in customer firms’ incorporation states, by removing legal obstacles for customer firms to cater to non-shareholders’ interests, builds suppliers’ trust and cooperation. Consistent with the notion that constituency statutes entice greater trust from suppliers, we find that suppliers make more relationship-specific investments in the supply chain after the enactment of constituency statutes in customers’ states, indicating a greater commitment to the customer. We also show an improvement in customers’ corporate social responsibility performance in the post-constituency-statute period, thus substantiating the claim that the constituency statutes increase customers’ stakeholder orientation. Cross-sectionally, we find the positive effect of constituency statutes on supplier relationship-specific investments is attenuated if the customer and supplier have more repeated interactions in the past, whereas the effect is more pronounced if suppliers produce durable goods. Overall, we provide novel evidence on the spillover of constituency statutes along the supply chain.

This study examines the relation between a firm’s supply chain hierarchical position and its information quality. We predict that firms located in a more upstream position within the supply chain network are exposed to greater demand variance, thereby leading to decreased quality of reported earnings and greater uncertainty in the public information available to investors. Consistent with this prediction, we find that firm’s vertical position in the supply chain network is negatively associated with its information quality (i.e., poorer earnings quality and higher stock return synchronicity). Our results are robust to the matched sample analysis, residual analysis, and alternative measures of information quality. We further show that the positive relation between firm’s hierarchical position and stock return synchronicity is more pronounced for firms facing higher information asymmetry. Overall, our findings suggest that a more upstream position in the supply chain network entails not only operational costs associated with amplified demand uncertainty but also costs related to the quality of reported information on which capital providers and other stakeholders rely.