The Effects Of Supplier/Customer Concentration On Firm’s Accounting Conservatism

As the important stakeholders of the firm, supplier and customer have a significant influence on many aspects of the firm, such as accounting information, management strategy and so on, therefore, the firm’s incentive to establish long-term cooperative relationships with them is very strong. Suppliers provide production required for the firm’s production and management, their investment is determined by the yield or the size of the firm, they should fully understand the firm’s operating conditions, to determine whether providing production for the firm, thus identifying receivables, then analysing whether it can recover money, decise to grant the firm commercial discount, cash discount, etc; as demanders of firm’s products, their purchase costs are related to the production and size of the firm, they should know whether the firm can delivery timely, whether the firm can keep stable production and sales discount that the firm can offer when buying products. The importance of a firm’s economic performance to its suppliers and customers leads to a demand from these stakeholders for the firm to report more conservatively, as measured by how quickly the firm recognizes bad news compared to good news. This demand is in part a consequence of managers having incentives to exploit their asymmetrically informed position relative to other firm stakeholders by being less forthcoming about bad news than good news,as they could incur significant costs if the firm went out of business, but potentially gain little from the firm performing above expected levels. A firm’s suppliers and customers will prefer it to account more conservatively leads to the study’s main hypothesis that a firm only meets the underlying demand for accounting conservatism from its suppliers or customers when these stakeholders have bargaining advantages over it that allow them to dictate terms of trade or whether trade occurs at all. In this paper, using supplier/customer concentration to measure the bargaining advantage that suppliers and customers have.Accordingly, this paper started from the theory of accounting conservatism and the related theory of supplier / customer characteristics, choosing all the A-share listed manufacturing companies in the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2007 to 2013 as the sample, combining with the actual situation in China, drawing on the relevant research model, to study the impact of supplier/customer concentration on accounting conservatism. The study found that, the supplier/ customer concentration showed a significant positive correlation with the company’s accounting conservatism; compared with the state-owned listed companies, non-state-owned listed companies’ suppliers and customers’ concentration showed a stronger positive correlation with the company’s accounting conservatism; compared with the customers’ concentration, the concentration of suppliers showed a stronger positive correlation with the company’s accounting conservatism.In this paper, the conclusion about the relationship between supplier / customer concentration and accounting conservatism enriches the existing empirical evidence of the factors of accounting conservatism from a new perspective,increases the research literature of economic consequences about the supplier-customer relationship.