Return predictability in the corporate bond market along the supply chain

We explore how efficiently new information transmits along the supply chain in the corporate bond market. We find a strong predictability of the lagged bond returns of customers for related firm- and industry-level future bond returns. This is likely due to investors' inattention to cash flow-related news along the supply chain. Moreover, the lagged bond returns of suppliers only predict the future bond returns of those firms that have less bargaining power. Overall, our results suggest that information along the supply chain travels more gradually in the bond market than the stock market.