The role of financial reporting quality and quantity in government procurement: evidence from Japanese tenders

What the paper says

Purpose This study aims to examine how financial reporting quantity and quality relate to government procurement outcomes in Japan. Grounded in transaction cost economics and principal–agent theory, it examines whether disclosure enhances contract success in competitive tenders and whether political connections substitute for formal transparency. Design/methodology/approach Using Japanese procurement data (2020 and 2021), this study uses probit, ordinary least squares, tobit regressions to examine disclosure effects. The dataset comprises 4,955 firm-years of listed companies winning 6,870 central government tenders sourced from JETRO. It distinguishes competitive from non-competitive tenders and conducts sub-sample analyses by political connection. Endogeneity is addressed using instrumental variables and propensity score matching as robustness checks. Findings Firms with greater quantity and higher-quality reporting are more likely to win contracts in competitive tenders. No such effect is found in non-competitive tenders. Political connections weaken the disclosure–procurement link, indicating a substitution effect. These results highlight the role of formal transparency under institutional constraints. Social implications Enhancing financial reporting transparency can improve fairness and efficiency in public procurement by reducing agency costs. The findings underscore the risks posed by political influence, suggesting the need for regulatory reforms. Disclosure-based competition may broaden contract access and strengthen public trust. Originality/value This study offers novel insights by integrating tender competition and political connection into the analysis of financial reporting in public procurement. It extends prior work by demonstrating how institutional context shapes the informational value of disclosure. The findings inform both corporate strategy and procurement reform, advocating transparency in politically influenced contracting environments.