Do Major Customers Influence Voluntary Corporate Disclosure?
46 Pages Posted: 1 Sep 2013
Date Written: August 30, 2013
Abstract
Prior research suggests that firms in bilateral relationships have incentives to use accounting information to enhance stakeholders’ assessment of the firms’ reputation for fulfilling implicit claims. Using a database of firms’ major customers, we provide evidence that principal customers influence discretionary management earnings forecast disclosures. We find that firms with greater dependence on major customers are more likely to issue earnings forecasts, especially in environments where implicit claims with customers and resulting relationship-specific investments are significant. Further, we find that dependence on major customers is associated with more timely and frequent forecasts, but only when relationship-specific investments are more important. However, when relationship-specific investments are less important, the dependence on major customers is associated with more optimistically-biased forecasts. Overall, our results suggest that the decisions managers make about earnings forecasts are affected by the dependence on major customers.
Keywords: major customers, management earnings forecasts, forecast bias
JEL Classification: M41, L15
Suggested Citation: Suggested Citation
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