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Corporate Suppliers and Customers and Accounting ConservatismKai Wai HuiHong Kong University of Science & Technology - Department of Accounting Sandy KlasaUniversity of Arizona - Department of Finance P. Eric YeungCornell University - Samuel Curtis Johnson Graduate School of Management November 1, 2011 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.
Number of Pages in PDF File: 46 Keywords: Financial disclosures, Conservatism, Suppliers, Customers JEL Classification: M41, K12, D82 working papers seriesDate posted: July 1, 2009 ; Last revised: November 13, 2011Suggested CitationContact Information
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