Financial statement comparability and global supply chain relations

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.