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Customers’ Risk Factor Disclosures and Suppliers’ Investment Efficiency

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  • Tzu‐Ting Chiu
  • Jeong‐Bon Kim
  • Zheng Wang

Abstract

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 under‐ or 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. Divulgation d'information sur les facteurs de risque des clients et efficience de l'investissement des fournisseurs Les auteurs étudient l'incidence de la divulgation d'information, dans les rapports annuels, sur les facteurs de risque des sociétés en aval (les clients) sur l'efficience de l'investissement des sociétés en amont (les fournisseurs). Ils constatent que la divulgation de renseignements plus éclairants sur les facteurs de risque des clients est associée à une fréquence moins grande de sous‐investissement ou de surinvestissement des fournisseurs. De plus, cette relation inverse s'accentue lorsque les fournisseurs sont en situation de désavantage dans la négociation, lorsqu'ils exercent leurs activités dans des secteurs de biens durables et lorsqu'ils sont plus préoccupés par la volatilité de la demande future. Dans l'ensemble, les résultats de l’étude semblent indiquer que la divulgation des facteurs de risque par les sociétés dans leurs rapports annuels livre de l'information utile susceptible d'aider leurs fournisseurs à accroître l'efficience de leurs investissements.

Suggested Citation

  • Tzu‐Ting Chiu & Jeong‐Bon Kim & Zheng Wang, 2019. "Customers’ Risk Factor Disclosures and Suppliers’ Investment Efficiency," Contemporary Accounting Research, John Wiley & Sons, vol. 36(2), pages 773-804, June.
    • Handle: RePEc:wly:coacre:v:36:y:2019:i:2:p:773-804
    DOI: 10.1111/1911-3846.12447
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