Government Procurement and Changes in Firm Transparency
Posted: 3 Jul 2018
Date Written: September 1, 2019
The government requires its suppliers to have certain internal information processes to reduce uncertainty about their ability to fulfill their commitments. In this paper, I argue that these requirements improve suppliers’ internal information, which leads to better external reporting. Using a dataset of U.S. government contracts, I find a positive relation between government contract awards and the quality of firms’ external reporting environment. Consistent with procurement-related requirements driving this relation, I find that firms improve their external reporting when they first begin contracting with the government, and that the magnitude of the improvement varies predictably with contract characteristics that impose greater requirements on contractors’ internal information processes. Finally, I use the establishment of the Cost Accounting Standards Board (CASB) in 1970 as an exogenous increase to internal information requirements on contractors and find greater improvements in the external reporting environment among firms subject to the CASB. Overall, these results suggest that the government as a customer helps shape firms’ external reporting through requirements on their internal information processes.
Keywords: government procurement, information environment, internal information processes
JEL Classification: D82, D83, G14, H57, M41, M48
Suggested Citation: Suggested Citation