Accounting Quality and Supplier-Customer Contracting: Evidence from Government Contractor Selection

• In Event: Are Financial Statements Useful?

Abstract

This paper documents a demand for high accounting quality in customer-supplier
contracting. Using a novel dataset of government contracts, we find that firms with higher
accruals quality are more likely to be selected as suppliers by government agencies. We also find
that accruals quality of the selected suppliers is positively associated with the level of
competition for government contracts. These findings are consistent with government agencies’
demand for high accounting quality in their contracting process.

Authors

• Joseph Pacelli, Cornell University

• Eric Yeung, Cornell University

• Kai Wai Hui, Hong Kong University of Science & Technology