Effects of the Existence and Identity of Major Customers on Supplier Profitability: Is Wal-Mart Different?

Posted: 22 May 2009 Last revised: 11 Aug 2009

See all articles by Marty Gosman

Marty Gosman

Quinnipiac University

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Date Written: May 18, 2009

Abstract

We investigate how buyer power in the retail market affects suppliers’ profitability. Buyer power exists when suppliers depend on a concentrated set of retailers. Further, Wal-Mart, the world’s largest retailer, possesses additional buyer power because it has a dominant position in many product supply chains, advanced inventory management practices, and cutting edge technology. We form a sample of firms that supply retailers and utilize the major customer disclosure (SFAS No. 131) to proxy for dependence on major customers and the incremental Wal-Mart effect associated with buyer power. We find that as sales to major customers increase, supplier gross margins and return on assets decrease while their inventory and payables management improves. Wal-Mart is incrementally associated with increasing gross margins, improving cash collections, and extended payment terms with its vendors. Supplier power offsets some of the adverse effects. Our findings provide insight on financial implications of supply chain dynamics where (1) one firm has an economic dependence upon a major customer, and (2) the major customer is a leading channel member.

Keywords: buyer power, supplier power, major customer disclosures, Wal-Mart

JEL Classification: G29, M41, M45, L10, L81

Suggested Citation

Gosman, Marty and Kohlbeck, Mark J., Effects of the Existence and Identity of Major Customers on Supplier Profitability: Is Wal-Mart Different? (May 18, 2009). Journal of Management Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1406630

Marty Gosman

Quinnipiac University ( email )

275 Mt. Carmel Avenue
Hamden, CT 06518
United States
203-582-8755 (Phone)

Mark J. Kohlbeck (Contact Author)

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

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