Government Accounting Supervision and Corporate Demand Uncertainty

This paper investigates whether government accounting supervision shapes firms’ demand uncertainty. Using a sample of Chinese A-share listed firms from 2011 to 2024, we construct a dual framework capturing both direct inspections and industry spillovers. The results show that government inspections whether a firm is directly inspected or operates in an industry where peers are inspected significantly reduce sales revenue uncertainty. To uncover the underlying mechanisms, we examine two channels and find that government supervision lowers demand uncertainty by reducing consumer complaints and suppressing earnings manipulation, thereby improving information transparency and stabilizing market expectations. Heterogeneity analyses indicate that the effect is stronger for firms previously involved in financial fraud, those that actively undertake corrective actions, and those not subject to monetary penalties. Overall, the findings highlight the governance value of government accounting supervision and provide policy implications for improving supervisory resource allocation and promoting a virtuous cycle of supervision, rectification, and industry standardization. JEL Classification number: M48, D81, H83.