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Corporate suppliers and customers and accounting conservatism

Author

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  • Hui, Kai Wai
  • Klasa, Sandy
  • Yeung, P. Eric

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.

Suggested Citation

  • Hui, Kai Wai & Klasa, Sandy & Yeung, P. Eric, 2012. "Corporate suppliers and customers and accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 115-135.
    • Handle: RePEc:eee:jaecon:v:53:y:2012:i:1:p:115-135
    DOI: 10.1016/j.jacceco.2011.11.007
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    More about this item

    Keywords

    Financial disclosures; Conservatism; Suppliers; Customers;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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