Abstract
The crucial role and fragility of global supply chains highlight the need for deeper insights into the factors that can promote the establishment of global supply chain relations. We examine the impact of financial statement comparability on firms’ establishment of global supply chain relations. Using a large sample of supply chain relations from 49 non-U.S. economies over the period 2003–2020, we find that non-U.S. firms are more likely to establish and maintain more supply chain relations with U.S. firms when their financial statements are more comparable to industry peers in the U.S. To address endogeneity concerns, we show that our findings are robust to identification strategies exploring the exogenous changes in financial statement comparability associated with IFRS adoption or PCAOB international inspections. Moreover, we find that the effect of financial statement comparability on cross-border supply chain relations is more pronounced when the information barrier is higher between non-U.S. economies and the U.S. Overall, our study provides new insights into the impact of financial statement comparability on firms’ establishment of cross-border supply chain relations and sheds lights on the role of financial statement comparability in promoting international trade.
Résumé
Le rôle crucial et la fragilité des chaînes d'approvisionnement mondiales soulignent la nécessité de mieux comprendre les facteurs qui peuvent favoriser l'établissement de relations dans la chaîne d'approvisionnement mondiale. Nous examinons l'impact de la comparabilité des états financiers sur ce dernier. En utilisant un grand échantillon de relations de chaîne d'approvisionnement provenant de 49 économies non américaines sur la période 2003–2020, nous constatons que les entreprises non américaines sont plus susceptibles d'établir et de maintenir davantage de relations de chaîne d'approvisionnement avec les entreprises américaines lorsque leurs états financiers sont plus comparables à ceux de leurs homologues américains. Afin d’aborder des problèmes d'endogénéité, nous montrons que nos résultats sont robustes aux stratégies d'identification explorant les changements exogènes dans la comparabilité des états financiers associés à l'adoption des IFRS ou aux inspections internationales du PCAOB. En outre, nous observons que l'impact de la comparabilité des états financiers sur les relations transfrontalières dans la chaîne d'approvisionnement est plus prononcé lorsque la barrière d’information est plus élevée entre les économies non américaines et les États-Unis. Dans l'ensemble, notre recherche apporte de nouveaux renseignements sur l'impact de la comparabilité des états financiers sur l'établissement de relations transfrontalières au sein de la chaîne d'approvisionnement par les entreprises, et met d’ailleurs en lumière le rôle de cette comparabilité dans la promotion des affaires internationales.
Resumen
El papel decisivo y la fragilidad de las cadenas globales de suministro pone relieve a la necesidad de perspectivas más profundas de los factores que pueden promover el establecimiento de las relaciones en las cadenas globales de suministro. Examinamos el impacto de la comparabilidad de los estados financieros al instaurar relaciones con la cadena de suministro global. Utilizamos una muestra grande relaciones de cadena de suministro de 49 economías no estadounidenses en el periodo 2003–2020, encontramos que las empresas no estadounidenses son más propensas a establecer y mantener las relaciones con empresas de los Estados Unidos cuando sus estados financieros son más comparables como los pares de industrias en los Estados Unidos. Para abordar los problemas de endogeneidad, mostramos que nuestros resultados son robustos a las estrategias de identificación que exploran los cambios exógenos en la comparabilidad de los estados financieros asociados a la adopción de las NIIF o a las inspecciones internacionales de la Junta de Supervisión de la Contabilidad de Empresas Públicas (PCAOB por sus iniciales en inglés). Además, el efecto de la comparabilidad de los estados financieros en las relaciones transfronterizas de la cadena de suministro es más pronunciado cuando la barrera de la información es mayor entre las economías no estadounidenses y los Estados Unidos. En términos generales, nuestro estudio proporciona nuevos conocimientos sobre el impacto de la comparabilidad de los estados financieros en el establecimiento de relaciones transfronterizas de la cadena de suministro por parte de las empresas y arroja luz sobre el papel de la comparabilidad de los estados financieros en la promoción del comercio internacional.
Resumo
O papel crucial e a fragilidade de cadeias de suprimento globais realçam a necessidade de insights mais profundos sobre os fatores que podem promover o estabelecimento de relações na cadeia de suprimento global. Examinamos o impacto da comparabilidade de demonstrações financeiras no estabelecimento de relações na cadeia de suprimento global entre as empresas. Usando uma ampla amostra de relações na cadeia de suprimento de 49 economias não norte-americanas durante o período 2003–2020, descobrimos que as empresas não norte-americanas são mais propensas a estabelecer e manter mais relações na cadeia de suprimento com empresas norte-americanas quando suas demonstrações financeiras são mais comparáveis a seus pares setoriais norte-americanos. Para abordar preocupações com endogeneidade, mostramos que nossas conclusões são robustas para estratégias de identificação que exploram mudanças exógenas na comparabilidade de demonstrações financeiras associada à adoção de IFRS ou a inspeções internacionais do PCAOB. Além disso, descobrimos que o efeito da comparabilidade de demonstrações financeiras nas relações transfronteiriças da cadeia de suprimento é mais pronunciado quando a barreira de informações é maior entre economias não norte-americanas e os Estados Unidos. No geral, nosso estudo fornece novos insights sobre o impacto da comparabilidade de demonstrações financeiras no estabelecimento de relações transfronteiriças na cadeia de suprimento pelas empresas e esclarece o papel da comparabilidade de demonstrações financeiras na promoção do comércio internacional.
摘要
全球供应链的关键作用和脆弱性强调需要更深入地了解能够促进建立全球供应链关系的因素。我们考察了财务报表可比性对公司建立全球供应链关系的影响。使用在2003–2020年期间来自49个非美国国家的供应链关系的大样本, 我们发现当美国公司的财务报表与美国同行更具可比性时, 非美国公司更有可能与美国公司建立并保持更多的供应链关系。为了解决内生性问题, 我们表明, 我们的研究结果对于探索与采用IFRS或PCAOB国际检查相关的财务报表可比性的外生变化的识别策略是稳健的。此外, 我们发现, 当非美国经济体和美国经济体之间的信息壁垒较高时, 财务报表可比性对跨境供应链关系的影响更为显著。总体而言, 我们的研究为财务报表可比性对企业建立跨境供应链关系的影响提供了新的见解, 并阐明了财务报表可比较性在促进国际贸易中的作用。
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Notes
We also use “cross-border supply chain relations” to refer to “non-U.S. firms’ supply chain relations with U.S. firms,” hereafter in our study.
In October 2002, the International Accounting Standards Board (IASB) and FASB signed the “Norwalk Agreement”. The two boards aimed to make their best efforts to (a) make their existing financial reporting standards “fully compatible as soon as is practicable” and (b) “coordinate their future work programs to ensure that once achieved, compatibility is maintained.”
We run a linear probability model when the dependent variable is Dummy_Relationsit because we include firm fixed effects in the regressions. The conventional Logistic or Probit model tends to overestimate the regression coefficients after adding a large number of indicator variables (Allison, 2006). We run the OLS model when the dependent variable is Log(1+Relationsit).
While several studies show that IFRS adoption may not improve financial statement comparability in certain conditions (Beneish et al., 2015; Felski, 2017), we directly test the impact of IFRS adoption on comparability in our sample and find supporting evidence that financial statement comparability between non-U.S. firms and their U.S. industry peers increases following IFRS adoption in those non-U.S. economies.
We report the adoption year of IFRS in each economy in Appendix 1. The data is collected from https://www.ifrs.org.
We collect the data of audit firm information from the Capital IQ database and initial PCAOB inspection dates from the PCAOB website. We report the initial PCAOB inspection year in each economy in Appendix 1.
The language difference is measured on a five-point scale as follows: 5. different families; 4. same family but different branches; 3. same branch but different at the first sub-branch level; 2. same sub-branch at the first level but different at the second level; 1. same language.
In untabulated tests, we further investigate the cross-firm variations in relation between financial statement comparability and cross-border supply chain relations. First, U.S. firms may pay more attention to non-U.S. firms with higher U.S. institutional ownership, as U.S. institutional ownership may improve financial statement comparability between U.S. and non-U.S. firms (Fang et al., 2015). Consistent with this expectation, we find that the effect of financial statement comparability on cross-border supply chain relations is more pronounced for firms with higher U.S. institutional ownership. Second, U.S. firms may search for a new buyer–supplier in a foreign economy-industry with many U.S. supply chain relations established in prior years. In such foreign economy-industries, non-U.S. firms without U.S. supply chain relations may learn from industry peers with U.S. supply chain relations and improve their financial statement comparability with U.S. firms. As supportive evidence, we find that the effect of financial statement comparability on cross-border supply chain relations is more pronounced for firms in economy-industries with more U.S. supply chains established in the previous 3 years.
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Acknowledgements
This work was supported in part by the National Natural Science Foundation of China (NSFC) Grant No.72201230, and Research Grants Council (RGC) of Hong Kong Grant No.14504621.
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Appendices
Appendix 1: IFRS adoption year and PCAOB initial inspection year in each economy
Economy | IFRS adoption year | PCAOB initial inspection year | Economy | IFRS adoption year | PCAOB initial inspection year |
---|---|---|---|---|---|
Argentina | 2012 | 2006 | Mexico | 2012 | 2006 |
Australia | 2005 | 2007 | Netherlands | 2005 | 2012 |
Austria | 2005 | 2018 | New Zealand | 2007 | 2007 |
Belgium | 2005 | – | Norway | 2005 | 2008 |
Brazil | 2010 | 2006 | Pakistan | 2009 | – |
Canada | 2011 | 2005 | Peru | 2012 | 2007 |
Chile | 2009 | 2005 | Philippines | 2005 | 2009 |
China | – | – | Poland | 2005 | – |
Colombia | 2016 | 2007 | Portugal | 2005 | – |
Denmark | 2005 | 2015 | Qatar | 2002 | – |
Egypt | – | – | Russia | 2012 | 2008 |
Finland | 2005 | 2013 | Saudi Arabia | 2017 | – |
France | 2005 | 2013 | Singapore | 2003 | 2008 |
Germany | 2005 | 2012 | South Africa | 2003 | 2008 |
Greece | 2005 | 2008 | Spain | 2005 | 2012 |
Hong Kong | 2005 | 2007 | Sri Lanka | 2012 | – |
India | – | 2008 | Sweden | 2005 | 2014 |
Indonesia | – | 2003 | Switzerland | 2005 | 2011 |
Ireland | 2005 | 2008 | Taiwan | 2013 | 2007 |
Israel | 2008 | 2005 | Thailand | – | 2010 |
Italy | 2005 | 2017 | Turkey | 2008 | 2011 |
Japan | – | 2006 | United Arab Emirates | 2003 | 2009 |
Korea | 2011 | 2007 | United Kingdom | 2005 | 2005 |
Kuwait | 2008 | – | Vietnam | – | – |
Malaysia | 2012 | 2010 |
Data source: IFRS adoption years from https://www.ifrs.org and PCAOB inspection years from https://pcaobus.org.
Appendix 2: Variable definitions
Variables | Definition | Data source |
---|---|---|
Relationsit | The number of supply chain relations of non-U.S. firm i with U.S. firms in year t. | FactSet Revere |
Dummy_Relationsit | A dummy variable indicating whether non-U.S. firm i has any supply chain relations with U.S. firms in year t. | FactSet Revere |
New_Relationsit | The number of newly established supply chain relations of non-U.S. firm i with U.S. firms in year t. | FactSet Revere |
Dummy_New_Relationsit | A dummy variable indicating whether non-U.S. firm i has any newly established supply chain relations with U.S. firms in year t. | FactSet Revere |
Comp30it | The average of the top 30 highest Compijt between non-U.S. firm i and U.S. industry peers in year t, where Compijt is the comparability for each possible combination of non-U.S. firm i and U.S. firm j within the same one-digit ICB industry group in year t. | Following prior studies (De Franco et al., 2011; Fang et al., 2015) |
Comp10it (CompMeanit) | The average of the top 10 highest (all available) Compijt between non-U.S. firm i and U.S. industry peers in year t, where Compijt is the comparability for each possible combination of non-U.S. firm i and U.S. firm j within the same one-digit ICB industry group in year t. | |
IFRSkt | An indicator variable which equals one if a given year is after IFRS adoption in county k and zero otherwise. | Following prior studies (Li et al., 2021; Defond et al., 2015) |
PCAOBit | An indicator variable which equals one if a given year is after the initial year of PCAOB inspections of auditors for firm i and zero otherwise. | PCAOB Website and Capital IQ |
Sizeit | The logarithm of market capitalization of firms. | Worldscope |
BMit | The book value of common equity divided by the market value of common equity. | Worldscope |
Leverageit | The ratio of total debt to total assets. | Worldscope |
ROAit | The ratio of net income to total assets. | Worldscope |
Segmentsit | The logarithm of the number of business segments of firms. | Worldscope |
Ret_Volit | The standard deviation of monthly returns in year t. | Datastream |
US_IOit | The percentage of outstanding shares held by U.S. institutional investors. | FactSet Ownership |
Crosslistingit | A dummy variable indicating whether a non-U.S. firm i is cross-listed in the U.S. in year t. | Datastream |
Comovementkt | The correlation between daily stock market index of non-U.S. economy k and that of the U.S. Following Pukthuanthong and Roll (2009), if one economy has several stock market indexes, we choose the index with the longest period of data availability. | Datastream |
Trade_USkt | The logarithm of the trade value between non-U.S. economy k and the U.S. | World Economic Outlook database |
GDP_Capitakt | The ratio of GDP to population in non-U.S. economy k in year t. | World Economic Outlook database |
GDP_Growthkt | The proportional change in GDP in non-U.S. economy k from year t-1 to year t. | World Economic Outlook database |
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Peng, J., Liu, B., Wu, J. et al. Financial statement comparability and global supply chain relations. J Int Bus Stud 55, 342–360 (2024). https://doi.org/10.1057/s41267-023-00673-4
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DOI: https://doi.org/10.1057/s41267-023-00673-4