Major Government Customer and Management Earnings Forecasts

45 Pages Posted: 8 Nov 2019

See all articles by C.S. Agnes Cheng

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Wenli Huang

Hong Kong Polytechnic University

Shaojun Zhang

Hong Kong Polytechnic University

Date Written: October 30, 2019

Abstract

This paper examines whether customer base composition, i.e., whether a firm’s major customers comprise of government entities or publicly traded companies in the U.S., affects the properties of supplier’s management earnings forecasts. Using a sample of 1,168 management earnings forecasts from 1998 through 2014, we find that firms whose major customers are government entities (i.e., government suppliers) issue more precise and more accurate management earnings forecasts than firms whose major customers are public companies (i.e., corporate suppliers). Moreover, when managers disclose negative information to the market, earnings forecasts issued by government suppliers have greater price impact than those issued by corporate suppliers. Collectively, our empirical results suggest that having government as a major customer has a positive impact on the quality of management earnings forecasts.

Keywords: Customer-supplier relationship, Demand uncertainty, Major government customer, Information spillover, Management earnings forecasts

JEL Classification: G14, D80, M41

Suggested Citation

Cheng, C.S. Agnes and Huang, Wenli and Zhang, Shaojun, Major Government Customer and Management Earnings Forecasts (October 30, 2019). Available at SSRN: https://ssrn.com/abstract=3477672 or http://dx.doi.org/10.2139/ssrn.3477672

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Wenli Huang

Hong Kong Polytechnic University ( email )

School of Accounting and Finance
Hung Hom, Kow Loon, Hong Kong
Hong Kong

Shaojun Zhang (Contact Author)

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

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