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Customer Concentration and Loan Contract Terms

Journal of Financial Economics, Forthcoming

65 Pages Posted: 29 May 2014 Last revised: 13 Aug 2016

Murillo Campello

Cornell University; National Bureau of Economic Research (NBER)

Janet Gao

Indiana University - Kelley School of Business

Date Written: March 8, 2016


We study pricing and non-pricing features of loan contracts to gauge how the credit market evaluates a firm's customer-base profile and supply-chain relations. Higher customer concentration increases interest rate spreads and the number of restrictive covenants featured in newly-initiated as well as renegotiated bank loans. Customer concentration also abbreviates the maturity of those loans as well as the relationship between firms and their banks. These effects are intensified by customers' financial distress, the level of relationship-specific investments, and the use of trade credit in customer--supplier relations. Our evidence shows that a deeper exposure to a small set of large customers bears negative consequences for a firm's relations with its creditors, revealing limits to integration along the supply chain.

Keywords: Customer Concentration, Bank Loans, Contract Terms, Financial Distress, Instrumental Variables, Fixed Effects

JEL Classification: G21, G30, G32

Suggested Citation

Campello, Murillo and Gao, Janet, Customer Concentration and Loan Contract Terms (March 8, 2016). Journal of Financial Economics, Forthcoming. Available at SSRN: or

Murillo Campello

Cornell University ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Janet Gao (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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