Bargaining Power of Suppliers and Buyers, and Accounting Conservatism—Evidence from Chinese Manufacturing Listed Companies

Abstract

Using the panel data of Chinese manufacturing listed companies from 2003 to 2012, this paper examines the effects of suppliers' and franchisers' (buyers') bargaining power on accounting con-servatism. The empirical research proves that there is an inverted U-shape relationship between suppliers' bargaining power and conditional conservatism, with lower left wing and higher right wing. The relationship between franchisers' (buyers') bargaining power and conditional conser-vatism is not significant. On the contrary, there is a U-shape relationship between suppliers', franchisers' (buyers') bargaining power and unconditional conservatism. The relationship be-tween suppliers' bargaining power and unconditional conservatism has higher left wing and lower right wing. Our research results explain how strong suppliers and franchisers (buyers) affect companies' accounting practices in the Chinese context. In the meantime, our results provide support to the contracting explanation for accounting conservatism.