How Does Board Structure Affect Customer Concentration?

47 Pages Posted: 13 Sep 2018 Last revised: 14 Oct 2018

See all articles by Joon Ho Kim

Joon Ho Kim

University of Hawaii at Manoa

Wei-Ming Lee

City University of Hong Kong

Date Written: October 1, 2018

Abstract

We study how board structure affects a firm's customer base. Using the Sarbanes-Oxley Act of 2002 (SOX) and related governance reforms as exogenous shocks that increase board independence, we find that SOX-affected firms diversify their customer base because of the reforms. In the average SOX-affected firm, the percentage of sales made to all the major customers decreased by 2.19 percentage points when compared to that of the control peers. Lower customer concentration is associated with higher Tobin's Q. The most likely channel through which SOX brings these changes is by removing directors or executives linked to major customers.

Keywords: Board of directors, customer concentration, corporate governance, customer base

JEL Classification: G30, G34, G38

Suggested Citation

Kim, Joon Ho and Lee, Wei-Ming, How Does Board Structure Affect Customer Concentration? (October 1, 2018). Available at SSRN: https://ssrn.com/abstract=3238644 or http://dx.doi.org/10.2139/ssrn.3238644

Joon Ho Kim

University of Hawaii at Manoa ( email )

2404 Maile Way
Honolulu, HI 96822
United States

Wei-Ming Lee (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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