The Effect of Self-Disclosing Misconduct on Supplier-Customer Contracting: Does It Pay to Be Transparent?

<p>Using data on contracts with government customers, I show that corporate suppliers' self-disclosure of misconduct to customers affects their future contracting prospects with those customers. Employing a generalized difference-in-differences design, I exploit a disclosure requirement mandating supplier firms to self-disclose contract-related misconduct to their agency customers. I document a significant increase in firms' post-misconduct contracting revenues after the mandate takes effect, relative to those of comparison firms which are not subject to the mandate. I further find that in the contracts firms receive post-misconduct, agencies substitute 25% risk-mitigating fixed-price contracts for difficult-to-monitor but quality-incentivizing cost-plus contracts after the mandate takes effect. These findings suggest that self-disclosure improves firms' contracting prospects by reducing customers' expected losses from misconduct, and can substitute for costly risk-mitigating contract design. These effects are attenuated when (1) firms sustain reputational damage by over- or under-disclosing misconduct, (2) firms are repeat violators with a history of contract defaults, and (3) agency customers’ cost of switching suppliers is high. Finally, firms make fewer misstatements after adopting the mandate, consistent with customer monitoring as enabled by suppliers' transparency improves financial reporting quality.</p>

Name thesis:degree_name

Doctor of Philosophy

Level thesis:degree_level

Doctoral

Discipline thesis:degree_discipline

Business

Grantor

The Graduate School and University Center of The City University of New York

Year dc:date.available

2022

Author dc:creator

• Li, Heyun

Advisor dc:contributor.advisor

• Donal Byard, Monica Neamtiu

Committee members dc:contributor.committeemember

• Edward X. Li
• Theodore Joyce

• Accounting
• Business
• Business Administration, Management, and Operations
• Business Law, Public Responsibility, and Ethics
• Contracts
• Criminology and Criminal Justice
• Finance and Financial Management
• Law and Economics
• Management Sciences and Quantitative Methods
• Policy Design, Analysis, and Evaluation
• self-reporting
• mandatory self-disclosure laws
• corporate misconduct
• misconduct remediation
• government contracting
• supply chain transparency
• supplier-customer relationship

Repository record dc:identifier

https://academicworks.cuny.edu/gc_etds/4985

OAI identifier oai:identifier

oai:academicworks.cuny.edu:gc_etds-6073