Can Common Institutional Investors in Supply Chains Decode the Bullwhip Effect? Evidence From Order Backlog Mispricing.

This article investigates how supply chain common institutional investors (SCIIs)—those owning stocks in both upstream suppliers and their downstream customers—affect the valuation of upstream supplier firms' order backlog information. It finds that stock markets tend to overprice order backlog changes for upstream suppliers, especially second-tier suppliers, due to the bullwhip effect, which amplifies demand variability upstream and diminishes backlog's predictive power for future sales and earnings. Using hedge portfolio tests and Fama-MacBeth regressions, the study shows that SCIIs, leveraging their supply chain knowledge, mitigate this mispricing by better incorporating the bullwhip effect, particularly during economic expansions. The findings highlight the incremental value of supply chain expertise among institutional investors in improving pricing efficiency amid complex supply chain dynamics.