Supply Chain Concentration Is Not an Effective Predictor of A Share Excess Returns—Negative Evidence Based on the Fama MacBeth Method

Abstract

Does supply chain concentration (SC) constitute a pricing factor for stock excess returns? Using a sample of 4,302 Chinese A share stocks from 2002 to 2024, this paper systematically tests the predictive power of one year lagged supply chain concentration (lagged SC) for annual excess returns using the Fama MacBeth two pass cross sectional regression method at annual frequency. The empirical results show that, after controlling for firm size, a one percentage point change in lagged SC is associated with a change in annual excess returns of about 5.5 bp per year — far below the one way trading cost of about 10 bp in the A share market. Although the coefficient for lagged SC is statistically significant in some model specifications (t = 2.50), its economic magnitude is close to zero, and the effect is not robust over time — a marginal signal (p = 0.062) appears only in the 2009–2015 sub period and is insignificant in all other periods. Therefore, SC should not be regarded as an effective pricing factor in the A share market. This study provides clear negative evidence for empirical research at the intersection of supply chain finance and asset pricing.