Article

China Accounting and Finance Review

, 17:6

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Proprietary Costs and the Disclosure of Information about Major Customers: Evidence from Chinese Listed Firms

  • Song TangAffiliated withSchool of Accountancy/Institute of Accounting and Finance, Shanghai University of Finance and Economics Email author 
  • , Kaigang HeAffiliated withSchool of Accountancy/Institute of Accounting and Finance, Shanghai University of Finance and Economics
  • , Jie XuAffiliated withMPAcc, Shanghai office, KPMG

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.

Keywords:

Proprietary Costs Disclosure of Major Customer Information Product Market Competition Nature of Ownership Political Connections