Supply‑Chain Concentration, Debt Covenants and Accounting Conservatism: Evidence from Financing Constraints and Asset Allocation Adjustment

This study investigates how concentration in firms' supplier and customer bases is related to accounting conservatism. Drawing on Chinese A-share listed companies over 2015–2024, we find that firms relying more heavily on a small set of major trading partners report less conservatively. The association survives alternative measurements and model specifications. Channel tests indicate that concentrated supply-chain relationships operate partly by tightening external financing conditions and by reducing asset specificity, both of which weaken creditors' incentives to demand conservative reporting. Specifically, greater dependence on key suppliers and customers increases firms' exposure to financing frictions while encouraging adjustments toward more redeployable assets, thereby reshaping the contractual role of conservative accounting. The effect is not uniform across firms: it is more evident for non-state-owned enterprises, growth-stage firms, and firms with less diversified operations. These cross-sectional differences suggest that ownership structure, life-cycle characteristics, and business diversification influence firms' sensitivity to supply-chain dependence. By linking upstream–downstream dependence to financial-reporting choices, the study extends research on supply-chain governance and accounting quality and provides evidence relevant to firms, creditors, and regulators. The findings also highlight the importance of incorporating supply-chain structure into assessments of reporting incentives, credit risk, and corporate governance.