Original title: Do Customer Disclosures Affect Suppliers' Internal Capital Allocation Decisions?
Sangwook Nam · August 2026
Big companies often have multiple business divisions and must choose where to invest their money. Usually, they direct funds toward divisions with the brightest growth opportunities. This study looks at what happens to suppliers when their corporate customers are forced to disclose more business information under a rule called SFAS 131a US accounting rule; here, its adoption is used as a sudden outside change in how much customers disclose.. When customers share more data, outside competitors can target those relationships. To protect their business, suppliers do something surprising: they shift capital toward divisions with weaker growth signals to build extra capacity and defend their clients. By deliberately investing outside their best growth opportunities, suppliers are more likely to protect their market share and attract new customers later. However, fighting off competitors comes at a price. The divisions making these defensive investments ultimately suffer lower profitability.
Imagine you run a food stall next to a big office building, and you know the building's layout better than anyone. One day the building starts publishing its floor plans and tenant schedules to everyone, so your rivals can see exactly when and where the office workers will be hungry. You stop spending all your effort on your best dishes and start spending money on a weak side stall near the loading dock, just to keep that customer from being poached. In this paper, customer firms disclosing more is the published floor plan, and suppliers respond by moving money toward weak parts of their own business to defend the relationship, even though those parts earn less.
Customer disclosures are usually seen as good for investors, but this study shows they also force suppliers into defensive spending. A supplier may pour capital into a weak division just to protect a big customer, accepting lower returns. That changes how we should think about transparency rules: more disclosure does not just inform — it redirects real investment.
The abstract doesn't say what the limitations are. It does cover one disclosure shock (SFAS 131) and one outcome period, so the results may not generalize to other disclosure changes or settings.
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Do Customer Disclosures Affect Suppliers' Internal Capital Allocation Decisions? — Sangwook Nam
Abstract licence: CC0
Explanation generated by Synthesis from the abstract — it is not the original paper. This is a preprint, so it hasn't necessarily been peer reviewed.