Abstract
Abstract This paper empirically investigates the effect of proprietary costs on firms’ choices regarding the disclosure of major customer information in China. We document widespread variation in firms’ choices regarding the disclosure of the identities of their top five customers. Firms with high proprietary costs are more likely to conceal the identities of their top five customers. Specifically, firms with higher advertising expenditure and higher research and development (R&D) expenditure and firms operating in industries with intense product market competition tend to conceal the identities of their major customers. Considering the unique institutional environment in China, we further find that among politically connected firms, non-SOEs have a greater tendency to conceal the identities of their top five customers than SOEs. In addition, after controlling for the financing benefits gained from disclosing the identities of top five customers, our results do not change. Taken together, the results of this paper suggest that proprietary costs are an important factor in firms’ choices regarding the disclosure of information about major customers in China.
Highlights
Information about the market for a firm’s product is vital to investors
We find that firms with high proprietary costs (e.g. higher advertising expenditure; higher research and development (R&D) expenditure; in industries with more intense product market competition) tend to conceal the identities of their top five customers
The results of this paper suggest that proprietary costs are an important factor in firms’ choices regarding the disclosure of information about major customers
Summary
Information about the market for a firm’s product is vital to investors. From information on major customers, investors can know the concentration of current sales and future income trends but can assess the influence of the loss of an important customer on the firm’s revenue. Using a data set of customer information in the annual reports of Chinese A-share listed firms in 2011, this paper examines how proprietary costs affect firms’ choices regarding the disclosure of information about their top five customers. The results of this paper suggest that proprietary costs are an important factor in firms’ choices regarding the disclosure of information about major customers. Our results suggest that among politically connected firms, non-SOEs are more likely to conceal the identities of major customers than SOEs because politically connected non-SOEs face higher proprietary costs This finding is complementary to the findings in the Western literature. After controlling for the benefits gained from disclosure, proprietary costs will influence firms’ voluntary disclosure choices
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