Relationship-Specific Investment and Accounting Conservatism : Effect of Customers and Suppliers

We propose that relationship-specific investment induces accounting conservatism and find that at both industry and firm levels a firm's accounting conservatism is positively associated with relationship-specific investment of its customers/suppliers. Further, this association is weaker when vertical integration or extended relationship exists between the firm and its customers/suppliers. These results are qualitatively invariant to alteration of proxies for relationship-specific investment, conservatism or control for endogeneity