Corporate suppliers and customers and accounting conservatism

Kai Wai Hui, Sandy Klasa, P. Eric Yeung

Research output: Contribution to journalArticle

67 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)115-135
Number of pages21
JournalJournal of Accounting and Economics
Volume53
Issue number1-2
DOIs
StatePublished - Feb 1 2012

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Keywords

  • Conservatism
  • Customers
  • Financial disclosures
  • Suppliers

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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