Customer Concentration and Earnings Management: Evidence from the Sarbanes-Oxley Act

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This paper investigates whether the level of customer concentration can moderate the effect of the Sarbanes-Oxley Act of 2002 (SOX) on the earnings management of U.S. corporations. Large customers can act as a mechanism for reducing agency problems by pressuring supplier firms to be more efficient. Large customers may act as certifying agents for a supplier, and they may reduce information asymmetries about the supplier. These two channels suggest that customer concentration may affect corporate earnings management and hence generate heterogeneity in the effects of SOX. This paper documents that SOX has led firms with low customer concentration to reduce accrual-based earnings management more than those with high customer concentration have. The effect of customer concentration is especially pronounced when firms are involved in higher relationship-specific investments. The results are robust to accounting for endogeneity and alternative measures of discretionary accruals and customer concentration.
Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
Issue Date
2022-08
Language
English
Article Type
Article
Citation

EUROPEAN ACCOUNTING REVIEW, v.31, no.4, pp.905 - 936

ISSN
0963-8180
DOI
10.1080/09638180.2020.1858915
URI
http://hdl.handle.net/10203/298384
Appears in Collection
MG-Journal Papers(저널논문)
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