Customers’ Risk Factor Disclosures and Suppliers’ Investment Efficiency

By Tzu-Ting Chiu, Jeong‐Bon Kim, Zheng Wang. Contemporary Accounting Research, 2019

149 citations recorded by the source corpus.

This study examines the effect of downstream firms’ (i.e., customers’) risk factor disclosures contained in annual reports on the investment efficiency of upstream firms (i.e., suppliers). We find that more informative disclosures of customers’ risk factors are associated with less underor overinvestment by suppliers. In addition, this inverse association is stronger when the suppliers are at a bargaining disadvantage, when they operate in the durable goods industries, and when they are more concerned about the volatility of future demand. Overall, our results suggest that risk factor disclosures provided by firms in their annual reports contain useful information that could potentially help their suppliers achieve better investment efficiency.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/7793d58d5f6202519d75e083e6af3745cf37aef4