Corporate suppliers and customers and accounting conservatism

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

Research output: Contribution to journalArticle

56 Citations (Scopus)

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 2012

Fingerprint

Suppliers
Accounting conservatism
Firm performance
Information asymmetry
Accounting practices
Terms of trade
Stakeholders
Bargaining power
Contracting

Keywords

  • Conservatism
  • Customers
  • Financial disclosures
  • Suppliers

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

Corporate suppliers and customers and accounting conservatism. / Hui, Kai Wai; Klasa, Sandy J; Yeung, P. Eric.

In: Journal of Accounting and Economics, Vol. 53, No. 1-2, 02.2012, p. 115-135.

Research output: Contribution to journalArticle

Hui, Kai Wai ; Klasa, Sandy J ; Yeung, P. Eric. / Corporate suppliers and customers and accounting conservatism. In: Journal of Accounting and Economics. 2012 ; Vol. 53, No. 1-2. pp. 115-135.
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