Accounting Seminar（2014-14）

Topic：Supply Chain Lending and Accounting Conservatism

Speaker:Shuqing Luo（National University of Singapore）

Time: Friday,31 October, 10:00-11:30am

Location:Room 217, Guanghua Building 2

Organizer:Department of Accounting,MPAcc GSM, PKU

Abstract：

Economic interdependence between suppliers and customers generates proprietary information useful for credit risk assessment. Such proprietary information can mitigate information asymmetry between borrowers and lenders, and facilitate lenders in screening and monitoring borrowers. We propose that a pre-existing lending relationship with a borrower’s customer(s) grants the lender access to proprietary supply-chain information and hence, reduces the lender’s reliance on accounting conservatism in debt contracting. Consistently, we find a negative association between the pre-existing lender-customer lending relationship and the borrowing suppliers’ accounting conservatism at loan origination. This negative association becomes stronger when lenders have scant prior experience with borrowing suppliers, when customers operate in an opaque information environment, when customers represent important business partners, and when the suppliers extend sizeable trade credit to their customers. Further, we find less use of accounting-based covenants when lenders have a pre-existing lending relationship with the borrower’s customer(s). Our findings demonstrate the informational value of proprietary supply-chain information in affecting lenders’ reporting preferences and debt contract design.

Your participation is warmly welcomed!