Why Do Firms Hide Customer Identities? An Accounting Manipulation Explanation

Prior studies document that firms withhold about 40% of customer identities and attribute this practice to proprietary cost concerns. In this study, I propose a new economic reason for firms’ concealment of customer identities. I argue that when firms manipulate accounts related to customers, namely revenues and accounts receivable, they have incentives to conceal customer identities to reduce the likelihood of detection. Consistent with this argument, I find in a differencein-differences analysis that firms engaging in fraud related to revenues and accounts receivable reduce the disclosure of customer identities by 26% during the fraudulent years, relative to firms engaging in other types of fraud. The effect is more pronounced when managers have personal gains from the fraud, when firms have stronger relationships with their customers, and when firms face greater external monitoring from analysts and institutional investors. I also find that fraud detection risk is lower for firms that conceal customer identities than for firms that do not, consistent with the benefit of hiding customer identities.