Information Externalities of Corporate Earnings Disclosures: Evidence from MSME Procurement Decisions

We examine whether and how micro, small and medium-sized enterprises (MSMEs) adjust their operational decisions in response to the earnings information disclosed by nearby public firms. Using administrative transaction-level value-added tax (VAT) invoice data of MSMEs in China, we conduct a short-window event study around mandatory corporate earnings-forecast (EF) disclosure. We find that a one-standard-deviation increase in earnings surprise leads to a 1.27% increase in daily procurement of MSMEs located in the same city as the forecasting firm, consistent with earnings news serving as a forward-looking demand signal. The effect is strongest when public firms issuing earnings forecast face higher information asymmetry, when MSMEs are larger and have more suppliers, and when they operate in the same industry as the forecasting public firm—settings that facilitate information acquisition and processing. Consistent with the operational relevance of these signals, we document that procurement adjustments are concentrated in production-related inputs: core materials, fixed assets, and raw materials. Further, we show that MSMEs distinguish between genuine and opportunistic disclosures: they do not respond to inflated forecasts, and their procurement adjustments translate into subsequent sales growth. Collectively, our evidence suggests that public firm disclosures generate economically meaningful information externalities that shape real decisions beyond capital markets, extending the scope of financial reporting’s real effects to the millions of private firms that underpin local economies.