Vendor Incentives: Out of the Shadows and into the Sunlight

The CPA Journal, June 2011

9 Pages Posted: 8 Jun 2010 Last revised: 14 Jul 2011

See all articles by Brandt R. Allen

Brandt R. Allen

University of Virginia - Darden School of Business

Paul Farris

University of Virginia - Darden School of Business

David E. Mills

University of Virginia - Department of Economics

Robert Sack

University of Virginia - Darden School of Business

Date Written: June 4, 2010

Abstract

Each year in the U.S., manufacturers, distributors and retailers pay or receive billions of dollars in vendor incentives. The payments are an integral part of the marketing plans of many sellers and resellers. Yet, they are largely invisible to investors. Because the payments involved often are contingent on future performance, estimates are required and the resulting accruals can be subject to the pressures of earning management. More complete disclosure would benefit investors and financial markets as well as corporate officers and board members. The magnitude of the discounts and the necessity of estimating their final effects warrant a more comprehensive approach to disclosures in financial reports. In early 2001 the SEC proposed new disclosures requiring a four-column activity analysis for vendor incentives similar to that required for bad debts. That proposal failed, but should be revisited. It’s time to bring vendor incentives into the sunlight.

Keywords: Vendor Incentives, Financial Disclosure

JEL Classification: G3, M40, M30

Suggested Citation

Allen, Brandt R. and Farris, Paul and Mills, David E. and Sack, Robert, Vendor Incentives: Out of the Shadows and into the Sunlight (June 4, 2010). The CPA Journal, June 2011. Available at SSRN: https://ssrn.com/abstract=1621784

Brandt R. Allen

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924 -4842 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/allen.htm

Paul Farris (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-0524 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/farris.htm

David E. Mills

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

Robert Sack

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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