Customer Base Concentration and Debt Contracting

44 Pages Posted: 8 Sep 2011 Last revised: 7 Apr 2016

See all articles by Ying Huang

Ying Huang

University of Texas at Dallas

Ningzhong Li

University of Texas at Dallas

Ziyun (Calvin) Yang

University of Houston

Date Written: November 17, 2015

Abstract

This paper examines the effect of a firm’s customer base concentration on its loan contract terms and how the effect varies with the strength of its customer relationship. We predict that firms with more concentrated customer bases obtain less favorable loan contract terms due to the increased operating risk associated with a concentrated customer base, and that this effect is mitigated by strong customer relationship. Our empirical evidence is consistent with these predictions. We find that firms with more concentrated customer bases have higher loan spread and shorter loan maturity and are more likely to issue secured loans. These effects, however, become insignificant or even reverse when the supplier firm has a strong relationship with its customers.

Keywords: customer relationship, customer concentration, debt contracts

JEL Classification: M41

Suggested Citation

Huang, Ying and Li, Ningzhong and Yang, Ziyun, Customer Base Concentration and Debt Contracting (November 17, 2015). Available at SSRN: https://ssrn.com/abstract=1923793 or http://dx.doi.org/10.2139/ssrn.1923793

Ying Huang

University of Texas at Dallas ( email )

800 West Campbell
Richardson, TX 75080
United States

Ningzhong Li (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Ziyun Yang

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
449
Abstract Views
3,120
Rank
123,373
PlumX Metrics