Revenue recognition and channel stuffing in the Taiwanese semiconductor industry

Abstract

This paper examines whether a new revenue recognition standard, namely International Financial Reporting Standard 15 Revenue from Contracts with Customers (IFRS 15), incentivizes Taiwanese semiconductor companies to employ channel stuffing (CS) to meet or beat their earnings targets. By using a sample comprising 1399 firms listed on the Taiwanese Stock Exchange and over-the-counter markets between 2013 and 2019, we find that compared with Taiwanese firms in other sectors, semiconductor companies in Taiwan are more likely to employ CS to meet their earnings targets. Moreover, Taiwanese semiconductor companies have become more likely to use CS to meet their earnings targets since the implementation of IFRS 15. The obtained results pass a series of robustness checks and may help the potential driving forces for CS to be understood.