The effect of customers’ abnormal inventory on suppliers’ earnings quality

Harry FOK, Wilson CHAN, Liming LIU

Research output: Other Conference ContributionsPresentation

Abstract

This study examines whether the suppliers selling to customers with abnormal inventory performance behave differently in their financial reporting. In particular, we hypothesize that suppliers with high customer’s abnormal inventory growth faces higher uncertainty about future demand and profitability. This kind of suppliers are likely to engage in more earnings management activities to mitigate the risk towards meeting the future earnings targets. We use inventory metrics used in operations management to illustrate that customers with higher abnormal inventory growth (AIG) and abnormal inventory (ABI) are associated with high discretionary accruals, high real manipulation in operating activities and more SEC investigations. The proposed study suggests that poor customer inventory performances are likely to drive managers to produce poor quality financial reports.
Original languageEnglish
Publication statusPublished - 5 Jan 2019
EventThe 10th POMS-HK International Conference 2019 : Operations Excellence for a Better World - City University of Hong Kong, Hong Kong
Duration: 5 Jan 20196 Jan 2019
http://www.cb.cityu.edu.hk/ms/pomshk2019/conferenceprogram.htm (Conference program)

Conference

ConferenceThe 10th POMS-HK International Conference 2019 : Operations Excellence for a Better World
CountryHong Kong
Period5/01/196/01/19
OtherThe Tenth POMS-HK International Conference was organized by City University of Hong Kong from January 5 to 6, 2019. Under the theme Operations Excellence for a Better World, this conference intended to provide a platform for exchanging research ideas, industry practice, and managerial insights.
Internet address

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    FOK, H., CHAN, W., & LIU, L. (2019). The effect of customers’ abnormal inventory on suppliers’ earnings quality. The 10th POMS-HK International Conference 2019 : Operations Excellence for a Better World, Hong Kong.