Customer Political Ideology Divergence and Information Uncertainty: Evidence from Supplier Firms’ Management Forecasts

In an era marked by heightened political polarization, individuals’ beliefs and behavior are increasingly shaped by their political ideology. This division affects economic expectations as seen in survey data showing diverging consumer sentiment between Republicans and Democrats following the 2024 election in the United States. While existing literature has explored how partisanship shapes economic expectations and in turn economic decisions in the capital market, this proposed research seeks to investigate the impact of partisanship on interactions within product markets. Specifically, the proposed research aims to examine how political ideology divergence among major customers affects a supplier firm’s information uncertainty, manifesting in its management forecast practices. The product market is characterized by significant economic interdependence between suppliers and customers. Customers, typically, provide advance demand forecasts to upstream suppliers to facilitate their production planning and capacity building. Supplier firms rely on these customer demand forecasts to inform investment and operational decisions, as well as to predict future performance. Since these demand forecasts from customers are based on each customer’s economic expectations – shaped by their political ideologies – political misalignment among customers introduces divergent economic beliefs in their demand forecasts. These demand forecasts in turn, sends mixed signals about the broader economic outlook and future market demand to their suppliers, resulting in heightened information uncertainty for these suppliers. As a result, supplier firms facing politically misaligned customers may face challenges in forecasting future performance, reducing their ability and tendency to issue management forecasts. In addition, such supplier firms are less able to issue precise and accurate management forecasts. The findings of the proposed research will extend existing literature by highlighting the role of customer partisanship divergence as a source of friction in supply chain communication, thereby impacting corporate disclosure through supply chain information transfer. As customer information constitutes a critical input for firm decisions, the findings are expected to offer valuable insights into the broader economic consequences of political polarization for corporate decision making.