Manufacturers that sell products to distributors experience product return and pricing adjustment uncertainties until the products are resold to end-customers. Such manufacturers recognize revenue when products are delivered to distributors (sell-in), when distributors resell products (sell-through), or under some combination of these methods (sell-in for some distributor sales and sell-through for others). This study examines the implications of these revenue recognition methods for a sample of semiconductor firms during 2001–2008. Semiconductor firms face rapid product obsolescence, declining prices over product life cycles, and unexpected industry downturns, which naturally lead to product return and pricing adjustment uncertainties. I find that sell-through and combination firms are less likely to manage earnings compared to sell-in firms. I also find that earnings are more informative for sell-through firms compared to both sell-in and combination firms. These findings suggest that manufacturers that sell products through the distribution channel should defer revenue recognition until product return and pricing adjustment uncertainties are resolved.

JEL Classifications: M41

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