Events

Dr. Jingran Zhao
Associate Professor in Accounting
School of Accounting & Finance
Hong Kong Polytechnic University

An important aspect of supply chain planning is the use of forward supply contracts (FSCs) to contract for future supplies of production inputs. Using a novel hand-collected dataset customer firms’ FSCs, we find that firms with FSCs are more likely to issue management sales forecasts (MSFs). This finding is consistent with two explanations: i) FSCs protecting firms against suppliers who might use MSFs opportunistically to raise input prices and ii) FSCs enhancing managerial confidence in making accurate MSFs. Consistent with the first explanation, we find that the positive association between FSCs and MSFs is more pronounced when firms have suppliers that are more likely to exploit the firms’ MSFs. Consistent with the second explanation, we find that FSCs are associated with more accurate MSFs. In addition, we find that the positive association between FSCs and MSFs is more pronounced when FSCs are likely to be more important in enhancing managerial confidence in making accurate MSFs. Overall, our study provides a novel insight that FSCs play an important role in influencing managers’ decision to issue MSFs.