Customer Concentration, Bad News Withholding, and Stock Price Crash Risk

60 Pages Posted: 26 Apr 2018 Last revised: 10 May 2019

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

Jun Yao

Deakin University

Jingran Zhao

Hong Kong Polytechnic University

Date Written: May 7, 2019

Abstract

We investigate whether the presence of major corporate customers affects firm stock price crash risk. Using data on a large sample of U.S. firms, we find that firms with a more concentrated customer base have a higher stock price crash risk. Further, we show an amplified effect of customer concentration on crash risk for firms that attach more importance to customer relations and an attenuated effect for firms with stronger third-party monitoring. Overall, we find that a concentrated customer base imposes performance pressure on managers. This induces them to withhold bad news, which ultimately results in future stock price crashes.

Keywords: Customer concentration; Crash risk; Bad news withholding; Performance pressure.

JEL Classification: G14, G30, G32

Suggested Citation

Chen, Yangyang and Hu, Gang and Yao, Jun Alex and Zhao, Jingran, Customer Concentration, Bad News Withholding, and Stock Price Crash Risk (May 7, 2019). Available at SSRN: https://ssrn.com/abstract=3158088 or http://dx.doi.org/10.2139/ssrn.3158088

Yangyang Chen (Contact Author)

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

Jun Alex Yao

Deakin University ( email )

Burwood, Victoria 3215
Australia

Jingran Zhao

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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