Strategic Disclosures of Litigation Loss Contingencies When Customer–Supplier Relationships Are at Risk

In the presence of litigation facing suppliers, the supply-chain relationship is at risk. Suppliers with principal customers (dependent suppliers) have a higher concentration of sales to customers, and they are more at risk relative to suppliers without principal customers (non-dependent suppliers). As a result, we predict and find that litigation disclosure patterns differ for the two supplier types: dependent suppliers are more likely to delay bad news and accelerate good news related to litigation outcomes, compared to non-dependent suppliers. Such strategic disclosure patterns in our end-game setting are opposite to those documented in the existing supply-chain literature for the repeated-game setting (for example, Hui, Klasa, and Yeung 2012).

Keywords: Customer-Supplier Relationships; Litigation Loss Contingency Disclosures; Proprietary Costs

JEL Classification: M41, M48, K22

Suggested Citation: Suggested Citation

Cen, Ling and Chen, Feng and Hou, Yu and Richardson, Gordon D., Strategic Disclosures of Litigation Loss Contingencies When Customer–Supplier Relationships Are at Risk (May 1, 2017). The Accounting Review, Forthcoming, Rotman School of Management Working Paper No. 2310382, Available at SSRN: https://ssrn.com/abstract=2310382 or http://dx.doi.org/10.2139/ssrn.2310382