Accounting Quality and Alliance Contract Provisions

58 Pages Posted: 1 Jul 2020

See all articles by Rui Ge

Rui Ge

Shenzhen University - Shenzhen Audencia Business School

Yuan Ji

The Hong Kong Polytechnic University

Henock Louis

Pennsylvania State University - Smeal College of Business

Date Written: June 7, 2020

Abstract

We show that the number of governance provisions imposed on a firm by a strategic alliance partner decreases with the firm’s accounting quality. This effect is weaker when the firm has greater bargaining power and stronger when the alliance project is riskier. Moreover, the net benefit to an alliance partner of imposing an additional governance provision on its counterparty apparently increases when the counterparty accounting quality is low, resulting in an enhancement of the partner’s market value and a reduction in its bankruptcy risk. Furthermore, alliance partners adopt fewer provisions based on their counterparties’ accounting numbers when the counterparties’ accounting quality is poor.

Keywords: Strategic Alliance Contracts; Accounting Quality; Governance Provisions

JEL Classification: D74, M41

Suggested Citation

Ge, Rui and Ji, Yuan and Louis, Henock, Accounting Quality and Alliance Contract Provisions (June 7, 2020). Available at SSRN: https://ssrn.com/abstract=3621196 or http://dx.doi.org/10.2139/ssrn.3621196

Rui Ge

Shenzhen University - Shenzhen Audencia Business School ( email )

Shenzhen
China

Yuan Ji

The Hong Kong Polytechnic University ( email )

Hung Hom
Kowloon, Hong Kong
Hong Kong

Henock Louis (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802-3306
United States
814-865-4160 (Phone)
814-863-8393 (Fax)

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