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The Effects of Customers’ Bargaining Power on Capital Expenditure and Earnings Management: Evidence from Taiwan

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  • Shieh-Liang Chen
  • Li-Yu Chen

Abstract

This paper examines the effects of the relationship between suppliers and customers on a company's earnings management and the effects of accrual-based and real activities earnings management on the capital expenditure of a company. We also examine the influence of the bargaining power of major customers on earnings management and how this bagaining power intervenes in the relationship between capital expenditure and earnings management.When the bargaining power of major consumers is measured by the HHI index, the result shows that the higher the capital expenditure of a company, the greater the compnay's accrual earning managemet. If the bargaining power of major customers is measured at the thresholds of 5% and 10% of sales percentage, the higher the capital expenditure, the greater the real earnigs management. The stronger the bargaining power of major customers, the larger the real activities and accrual-based earnings management of the company. Moreover, there is a causal relationship between capital expenditure and earnings management. The bargining power plays an important role in the relatinship between earnings management and capital expenditure.

Suggested Citation

  • Shieh-Liang Chen & Li-Yu Chen, 2016. "The Effects of Customers’ Bargaining Power on Capital Expenditure and Earnings Management: Evidence from Taiwan," Accounting and Finance Research, Sciedu Press, vol. 5(3), pages 1-12, August.
    • Handle: RePEc:jfr:afr111:v:5:y:2016:i:3:p:12
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    References listed on IDEAS

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    1. Hui, Kai Wai & Klasa, Sandy & Yeung, P. Eric, 2012. "Corporate suppliers and customers and accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 115-135.
    2. Richard Lambert & Christian Leuz & Robert E. Verrecchia, 2007. "Accounting Information, Disclosure, and the Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 385-420, May.
    3. David Aboody & John Hughes & Jing Liu, 2005. "Earnings Quality, Insider Trading, and Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 43(5), pages 651-673, December.
    4. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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