Corporate suppliers and customers and accounting conservatism

Kai Wai Hui, Sandy Klasa and P. Eric Yeung

Journal of Accounting and Economics, 2012, vol. 53, issue 1, 115-135

Abstract: We argue that a firm's suppliers and customers prefer it to account more conservatively due to information asymmetry and these stakeholders' asymmetric payoffs with respect to the firm's performance. We predict that a firm meets this demand for accounting conservatism when suppliers or customers have bargaining advantages over it that enable them to dictate terms of trade or whether trade occurs at all. We show that when a firm's suppliers or customers have greater bargaining power, the firm recognizes losses more quickly. Our findings provide insights into how a firm's powerful suppliers and customers are associated with its accounting practices and also support the contracting explanation for accounting conservatism.

Keywords: Financial disclosures; Conservatism; Suppliers; Customers (search for similar items in EconPapers)
JEL-codes: D82 K12 M41 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (102)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:53:y:2012:i:1:p:115-135

DOI: 10.1016/j.jacceco.2011.11.007

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