Supply Chain Risk: Changes in Supplier Composition and Vertical Integration

Using textual analysis of earnings conference calls, we quantify firm level risk arising from the reliability of the supply chain from 2002 to 2020. Our proxy for perceived supply chain risk exhibits cross-sectional and time-series variation that aligns with reasonable priors and is unprecedently high following the COVID-19 pandemic. We find that firms that face higher supply chain risk establish relationships with closer and domestic suppliers and with suppliers that are industry leaders. In addition, firms that do not face financial constraints are more likely to engage in vertical M&As when they face supply chain risk.