TY - JOUR
T1 - Customer Concentration and Income Smoothing Activities
AU - Jung, Boochun
AU - Kim, Tae Wook
AU - Park, Sang Hyun
AU - Yoon, Sung Wook
N1 - Publisher Copyright:
© The Author(s) 2023.
PY - 2023
Y1 - 2023
N2 - We examine how customer concentration affects managers’ income smoothing incentives to signal their private information about risk and future earnings. We find a negative relation between customer concentration and income smoothing, suggesting that improved information sharing from suppliers to customers through private channels reduces managers’ incentives to smooth earnings. To mitigate endogeneity issues, we perform (a) a change in variables analysis, (b) a propensity score matching approach, and (c) a two-stage least squares regression analysis. Finally, we document that managers’ income smoothing activities decrease as the length of the relationship between a supplier and its major customers increases, corroborating our main findings. Prior studies have paid relatively little attention to the effects of various stakeholders, especially customers, on managers’ income smoothing activities. Our study fills this void in the literature by illustrating that customer concentration is an important determinant of income smoothing incentives.
AB - We examine how customer concentration affects managers’ income smoothing incentives to signal their private information about risk and future earnings. We find a negative relation between customer concentration and income smoothing, suggesting that improved information sharing from suppliers to customers through private channels reduces managers’ incentives to smooth earnings. To mitigate endogeneity issues, we perform (a) a change in variables analysis, (b) a propensity score matching approach, and (c) a two-stage least squares regression analysis. Finally, we document that managers’ income smoothing activities decrease as the length of the relationship between a supplier and its major customers increases, corroborating our main findings. Prior studies have paid relatively little attention to the effects of various stakeholders, especially customers, on managers’ income smoothing activities. Our study fills this void in the literature by illustrating that customer concentration is an important determinant of income smoothing incentives.
KW - customer concentration
KW - future earnings response coefficient
KW - income smoothing
KW - information sharing
KW - supplier–customer relationship
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U2 - 10.1177/0148558X231170077
DO - 10.1177/0148558X231170077
M3 - Article
AN - SCOPUS:85159302697
SN - 0148-558X
JO - Journal of Accounting, Auditing and Finance
JF - Journal of Accounting, Auditing and Finance
ER -