Skip Navigation Links.
Collapse <span class="m110 colortj mt20 fontw700">Volume 12 (2024)</span>Volume 12 (2024)
Issue 3, Volume 12, 2024
Issue 2, Volume 12, 2024
Issue 1, Volume 12, 2024
Collapse <span class="m110 colortj mt20 fontw700">Volume 11 (2023)</span>Volume 11 (2023)
Issue 6, Volume 11, 2023
Issue 5, Volume 11, 2023
Issue 4, Volume 11, 2023
Issue 3, Volume 11, 2023
Issue 2, Volume 11, 2023
Issue 1, Volume 11, 2023
Collapse <span class="m110 colortj mt20 fontw700">Volume 10 (2022)</span>Volume 10 (2022)
Issue 4, Volume 10, 2022
Issue 3, Volume 10, 2022
Issue 2, Volume 10, 2022
Issue 1, Volume 10, 2022
Collapse <span class="m110 colortj mt20 fontw700">Volume 9 (2021)</span>Volume 9 (2021)
Issue 4, Volume 9, 2021
Issue 3, Volume 9, 2021
Issue 2, Volume 9, 2021
Issue 1, Volume 9, 2021
Collapse <span class="m110 colortj mt20 fontw700">Volume 8 (2020)</span>Volume 8 (2020)
Issue 3, Volume 8, 2020
Issue 2, Volume 8, 2020
Issue 1, Volume 8, 2020
Collapse <span class="m110 colortj mt20 fontw700">Volume 7 (2019)</span>Volume 7 (2019)
Issue 3, Volume 7, 2019
Issue 2, Volume 7, 2019
Issue 1, Volume 7, 2019
Collapse <span class="m110 colortj mt20 fontw700">Volume 6 (2018)</span>Volume 6 (2018)
Issue 4, Volume 6, 2018
Issue 3, Volume 6, 2018
Issue 2, Volume 6, 2018
Issue 1, Volume 6, 2018
Collapse <span class="m110 colortj mt20 fontw700">Volume 5 (2017)</span>Volume 5 (2017)
Issue 4, Volume 5, 2017
Issue 3, Volume 5, 2017
Issue 2, Volume 5, 2017
Issue 1, Volume 5, 2017
Collapse <span class="m110 colortj mt20 fontw700">Volume 4 (2016)</span>Volume 4 (2016)
Issue 6, Volume 4, 2016
Issue 5, Volume 4, 2016
Issue 4, Volume 4, 2016
Issue 3, Volume 4, 2016
Issue 2, Volume 4, 2016
Issue 1, Volume 4, 2016
Collapse <span class="m110 colortj mt20 fontw700">Volume 3 (2015)</span>Volume 3 (2015)
Issue 5, Volume 3, 2015
Issue 4, Volume 3, 2015
Issue 3, Volume 3, 2015
Issue 2, Volume 3, 2015
Issue 1, Volume 3, 2015
Collapse <span class="m110 colortj mt20 fontw700">Volume 2 (2014)</span>Volume 2 (2014)
Issue 6, Volume 2, 2014
Issue 5, Volume 2, 2014
Issue 3A, Volume 2, 2014
Issue 4, Volume 2, 2014
Issue 3, Volume 2, 2014
Issue 2, Volume 2, 2014
Issue 1, Volume 2, 2014
Collapse <span class="m110 colortj mt20 fontw700">Volume 1 (2013)</span>Volume 1 (2013)
Issue 6, Volume 1, 2013
Issue 5, Volume 1, 2013
Issue 4, Volume 1, 2013
Issue 3, Volume 1, 2013
Issue 2, Volume 1, 2013
Issue 1, Volume 1, 2013
Journal of Business and Management Sciences. 2022, 10(3), 147-156
DOI: 10.12691/JBMS-10-3-6
Original Research

Supply Chain Relationship, Earnings Management, and Operational Risks

Hui-Sung Kao1 and Ming-Jiun Tsai1,

1Department of Accounting, Feng Chia University, Taichung, Taiwan

Pub. Date: July 21, 2022

Cite this paper

Hui-Sung Kao and Ming-Jiun Tsai. Supply Chain Relationship, Earnings Management, and Operational Risks. Journal of Business and Management Sciences. 2022; 10(3):147-156. doi: 10.12691/JBMS-10-3-6

Abstract

This study discusses the effect of supplier-customer relationships in the supply chain on operational risk and takes into account earnings management to explain the increment and modulation effect on supply chain relationship and operational risk. With listed and over-the-counter (OTC) companies in Taiwan from 2009 to 2018 as subjects, this study finds in its empirical results that in supplier-customer relationships, suppliers may obtain related information in due time and adopt a better cooperation mode in the supply chain to reduce operational risk when they have a higher key customer concentration. However, in such a case, their operational risk may increase with a higher key customer concentration if enterprises take real earnings management to manipulate earnings.

Keywords

supply chain management, key customer, operational risk, earnings management

Copyright

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References

[1]  Hrazdil, K., J. B. Kim, and X. Li. 2022. “Customers’ Risk Tolerance and Suppliers’ Investment Inefficiency”. Journal of Risk and Financial Management. 15 (2): 63.
 
[2]  Nguyen, H. K. 2022. “A 3-Dimensional Frame of Reference for Prevention of Risk in Supply Chain”. Journal of Risk and Financial Management. 15 (3): 142.
 
[3]  Kim, Y. H. 2017. “The Effects of Major Customer Networks on Supplier Profitability”. Journal of Supply Chain Management, 53(1), 26-40.
 
[4]  Seal, W. B., A. Berry, and J. Cullen. 2004. “Disembedding the Supply Chain: Institutionalized Reflexivity and Inter-Firm Accounting.” Accounting Organizations and Society. 29 (1): 73-92.
 
[5]  Davis, A. M. and K. Hyndman. 2019. “Multidimensional Bargaining and Inventory Risk in Supply Chains: An Experimental Study.” Management Science. 65 (3): 1286-1304.
 
[6]  Davis, A. M., E. Katok, and N. Santamaria. 2014. “Push, Pull, or Both? A Behavioral Study of How the Allocation of Inventory Risk Affects Channel Efficiency. Management Science.” 60 (11): 2666-2683.
 
[7]  Cachon, G. P. 2004. “The Allocation of Inventory Risk in a Supply Chain: Push, Pull, and Advance-Purchase Discount Contracts.” Management Science. 50 (2): 222-238.
 
[8]  Hui, K. W., S. Klasa, and P. E. Yeung. 2012. “Corporate Suppliers and Customers and Accounting Conservatism.” Journal of Accounting & Economics. 53 (1-2): 115-135.
 
[9]  Itzkowitz, J. 2013. “Customers and Cash: How Relationships Affect Suppliers’ Cash Holdings.” Journal of Corporate Finance 19: 159-180.
 
[10]  Chen, C., T. C. Huang, M. Garg, and M. Khedmati. 2021. “Governments as Customers: Exploring the Effects of Government Customers on Supplier Firms’ Information Quality”. Journal of Business Finance & Accounting. 48 (9-10): 1630-1667.
 
[11]  Yin, C., X. Cheng, Y. Yang, and D. Palmon. 2021. “Do Corporate Frauds Distort Suppliers’ Investment Decisions?”. Journal of Business Ethics. 172 (1): 115-132.
 
[12]  Zhang, H., G. Aydin, and R. P. Parker. 2022. “Social Responsibility Auditing in Supply Chain Networks”. Management Science. 68 (2): 1058-1077.
 
[13]  Maloni, M. J. and M. E. Brown. 2006. “Corporate Social Responsibility in the Supply Chain: An Application in the Food Industry.” Journal of Business Ethics. 68 (1): 35-52.
 
[14]  Birkey, R. N., R. P. Guidry, M. A. Islam, and D. M. Patten. 2018. “Mandated Social Disclosure: An Analysis of the Response to the California Transparency in Supply Chains Act of 2010.” Journal of Business Ethics. 152 (3): 827-841.
 
[15]  Hofmann, H., M. C. Schleper,and C. Blome,2018. “Conflict Minerals and Supply Chain Due Diligence: An Exploratory Study of Multi-tier Supply Chains.” Journal of Business Ethics. 147 (1): 115-141.
 
[16]  Short, J. L., M. W. Toffel, and A. R. Hugill. 2016. “Monitoring Global Supply Chains.” Strategic Management Journal. 37 (9): 1878-1897.
 
[17]  Burchielli, R., A. Delaney, J. Tate, and K. Coventry. 2009. “The FairWear Campaign: An Ethical Network in the Australian Garment Industry.” Journal of Business Ethics. 90 (4): 575-588.
 
[18]  Gumus, M., S. Ray, and H. Gurnani. 2010. “Supply-Side Story: Risks, Guarantees, Competition, and Information Asymmetry.” Management Science. 58 (9): 1694-1714.
 
[19]  Yang, Z., G. Aydin, V. Babich, and D. R. Beil. 2009. “Supply Disruptions, Asymmetric Information, and a Backup Production Option”. Management Science. 55 (2): 192-209.
 
[20]  Ozalp and Wei,2006. “Strategic Commitments for an Optimal Capacity Decision Under Asymmetric Forecast Information.” Management Science. 52 (8): 1238-1257.
 
[21]  Gu, T. and A. Venkateswaran. 2018. “Firm-supplier Relations and Managerial Compensation.” Review of Quantitative Finance and Accounting. 51 (3): 621-649.
 
[22]  Gong, G. and S. Luo. 2018. “Lenders' Experience with Borrowers' Major Customers and the Debt Contracting Demand for Accounting Conservatism.” The Accounting Review. 93 (5): 187-222.
 
[23]  Cen, L., F. Chen, Y. Hou, and G. D. Richardson. 2018. “Strategic Disclosures of Litigation Loss Contingencies When Customer-Supplier Relationships Are at Risk.” The Accounting Review. 93 (2): 137-159.
 
[24]  Huang, H. H., G. J. Lobo, C. Wang, and H. Xie. 2016. “Customer Concentration and Corporate Tax avoidance.” Journal of Banking & Finance. 72: 184-200.
 
[25]  Raman, K. and H. Shahrur. 2008. “Relationship-Specific Investments and Earnings Management: Evidence on Corporate Suppliers and Customers.” The Accounting Review. 83 (4): 1041-4081.
 
[26]  Alhadab, M. L. Clacher, and K. Keasey. 2015. “Real and Accrual Earnings Management and IPO Failure Risk.” Accounting and Business Research. 45 (1): 55-92.
 
[27]  Holzhacker, M., R. Krishnan, and M. D. Mahlendorf. 2015. “Unraveling the black box of cost behavior: an empirical investigation of risk drivers, managerial resource procurement, and cost elasticity.” The Accounting Review 90(6): 2305-2335.
 
[28]  Dhaliwal, D., H. S. Lee, and M. Neamtiu. 2011. “The Impact of Operating Leases on Firm Financial and Operating Risk.” Journal of Accounting, Auditing & Finance. 26 (2): 151-197.
 
[29]  Nien, K-T., C-L. Chin, C-C. Chou, and W-A. Wang. 2016. “The Vertical Information Transfer of Conference Calls along the Supply Chain: An Example from the Semiconductor Industry in Taiwan”. NTU Management Review. 26 (3): 1-34.
 
[30]  Zsidisin, G. A., and L. M. Ellram. 2003. “An Agency Theory Investigation of Supply Risk Management”. Journal of supply chain management, 39(2), 15-27.
 
[31]  Mishra, B. K. and S. Raghunathan. 2004. “Retailer- vs. Vendor-Managed Inventory and Brand Competition.” Management Science. 50 (4): 445-457.
 
[32]  Netessine, S. and N. Rudi,2006. “Supply Chain Choice on the Internet. ” Management Science. 52 (6): 844-864.
 
[33]  Huang, M-C., C-C. Kang, and J-C. Hong. 2012. “Investigating the Cross-level Effects of Supply Chain Integration on Suppliers' Performance”. Journal of Management & Systems. 19 (1): 53-77.
 
[34]  Weeks, K. and J. Mileski. 2013. The Impact of Resource Commitment, Product Route Efficiency on Supply Chain Performance and Profitability: An Empirical Case Analysis. Journal of Business and Management Sciences. 1 (5): 105-111.
 
[35]  Wolf, J. 2014. “The Relationship Between Sustainable Supply Chain Management, Stakeholder Pressure and Corporate Sustainability Performance. Journal of Business Ethics. 119 (3): 317-328.
 
[36]  Chen, T-K., H-H Liao, and H-C Huang .2014. “Macroeconomic Risks of Supply Chain Counterparties and Corporate Bond Yield Spreads.” Review of Quantitative Finance and Accounting. 43 (3): 463-481.
 
[37]  Chen, T-K. and H-H Liao. 2018. “Suppliers’/customers’ Production Efficiency Uncertainty and Firm Credit Risk.” Review of Quantitative Finance and Accounting. 50 (2): 519-560.
 
[38]  Tsai, F-T and H-Y. Chen. 2015. “The Announcement Effects of Credit Ratings along the Supply Chain”. Review of Securities and Futures Markets. 27 (3): 31-64.
 
[39]  Dhaliwal, D., J. S. Judd, M. Serfling, and S. Shaikh. 2016. “Customer Concentration Risk and the Cost of Equity Capital.” Journal of Accounting & Economics. 61 (1): 23-48.
 
[40]  Kolay, M., M. Lemmon, and E. Tashjian. 2016. “Spreading the Misery? Sources of Bankruptcy Spillover in the Supply Chain.” Journal of Financial and Quantitative Analysis. 51 (6): 1955-1990.
 
[41]  Chang, H-H, S-C, Chang, and H-E, Tong. 2008. “The Effect of Collaboration and Organizational Characteristics on Performance of Supply Chain Management.” Sun Yat-Sen Management Review. 16 (1): 9-49.
 
[42]  Gosman, M., T. Kelly, P. Olsson, and T. Warfield. 2004. The Profitability and Pricing of Major Customers. Review of Accounting Studies, 9(1), 117-139.
 
[43]  Cohen, D. A. and P. Zarowin. 2010. Accrual-based and Real Earnings Management Activities around Seasoned Equity Offerings. Journal of Accounting and Economics, 50(1), 2-19.
 
[44]  Lanier Jr, D., W. F. “Wempe, and M. Swink. 2019. Supply Chain Power and Real Earnings Management: Stock Market Perceptions, Financial Performance Effects, and Implications for Suppliers”. Journal of Supply Chain Management, 55(1), 48-70.
 
[45]  Ho, C-L, G. C. Lai, and J-P Lee. 2013. “Organizational Structure, Board Composition, and Risk Taking in the U.S. Property Casualty Insurance Industry.” The Journal of Risk and Insurance. 80 (1): 169-203.
 
[46]  Patatoukas, P. N. 2012. “Customer-Base Concentration: Implications for Firm Performance and Capital Markets.” The Accounting Review. 87 (2): 363-392.
 
[47]  Hsu, Y-S, H-C, Chen, and W-C Chen. 2013. “The Impact of Board Characteristics on the Choice of Earnings Management.” International Journal of Accounting Studies. 57: 39-72.
 
[48]  Cohen, D. A., A. Dey, and T. Z. Lys. 2008. “Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods.” The Accounting Review. 83 (3): 757-787.
 
[49]  Roychowdhury, S. 2006. “Earnings Management Through Real Activities Manipulation.” Journal of Accounting & Economics. 42 (3): 335-370.
 
[50]  Correia, M., J. Kang, and S. Richardson. 2018. “Asset Volatility.” Review of Accounting Studies. 23 (1): 37-94.
 
[51]  Faulkender, M. and M. A. Peterson. 2006. “Does the Source of Capital Affect Capital Structure.” The Review of Financial Studies. 19 (1): 45-79.
 
[52]  Ling, T., J. Yu, and Y. Zhang. 2019. “How do Industry Peers Influence Individual Firms’ Voluntary Disclosure Strategies.” Review of Quantitative Finance and Accounting. 54 (1): 1-46.
 
[53]  Bernile, G., V. Bhagwat, and S. Yonker. 2018. “Board Diversity, Firm Risk, and Corporate Policies.” Journal of Financial Economics. 127 (3): 588-612.
 
[54]  Ferreira, D., M. A. Ferreira, and B. Mariano. 2018. “Creditor Control Rights and Board Independence.” The Journal of Finance. 73 (5): 2385-2423.
 
[55]  Clifford, C. P., J. A. Ellis, and W. C. Gerken. 2018. “Hedge Fund Boards and the Market for Independent Directors.” Journal of Financial and Quantitative Analysis. 53 (5): 2067-2101.
 
[56]  Lu, X., T. Duan, and W. Hou. 2019. “Do Board Secretaries Influence Management Earnings Forecasts.” Journal of Business Ethics. 154 (2): 537-574.
 
[57]  Wilbanks, R. M., D. R. Hermanson, and V. D. Sharma 2017. “Audit Committee Oversight of Fraud Risk: The Role of Social Ties, Professional Ties, and Governance Characteristics.” Accounting Horizons. 31 (3): 21-38.
 
[58]  Gendron, Y., M. Brivot, and H. Guénin-Paracini. 2016. “The Construction of Risk Management Credibility Within Corporate Boardrooms.” European Accounting Review. 25 (3): 549-578.
 
[59]  Kothari, S. P., A. J. Leone, and C. E. Wasley. 2005. “Performance Matched Discretionary Accrual Measures.” Journal of Accounting & Economics. 39 (1): 163-197.
 
[60]  Dhaliwal, D., O. Z. Li, A. Tsang, and Y. G. Yang. 2014. “Corporate Social Responsibility Disclosure and the Cost of Equity Capital: The Roles of Stakeholder Orientation and Financial Transparency.” Journal of Accounting and Public Policy. 33 (4).