Customers accounting quality and suppliers investment efficiency

Abstract

This research examines the relationship between customer-firms accounting quality and supplier-firms investment efficiency. We observe that higher-quality accounting information of customers reduces inefficient investments of suppliers. Accounting quality is measured by accrual quality and investment efficiency is measured by deviation from expected investment. The channels we propose are direct customer-supplier channel and external channel, by external channel, we mean that customer information exerts influence on supplier investment decision-making via third parties. Analyst, an important third party for the firms, are utilized to demonstrate our external channel. The results suggest that customer information is effective in investment efficiency improvement of suppliers, and more effective with analysts following.