Customer Concentration and Speed of Capital Structure Adjustments

49 Pages Posted: 12 Mar 2021 Last revised: 2 May 2021

See all articles by Obaid Ur Rehman

Obaid Ur Rehman

Southeast University

Xiaoxing Liu

Southeast University - School of Economics and Management

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance

Ziyan Zhu

Southeast University - School of Economics and Management

Date Written: April 22, 2021

Abstract

We examine whether and how commitment to major customers affects the speed of adjustment (SOA) to achieve its target capital structure. We find a negative association between the degree of customer concentration (CC) and supplier firm’s SOA, especially in overleveraged firms. The negative association is more pronounced in firms with financial constraints and liquidity pressure, low market share, and low cost in private information acquisitions. Besides, the adverse impact of CC on SOA is stronger when the suppliers are engaged in high relationship-specific investments. Finally, we identify the management earnings forecast as a mediating channel between CC and SOA. Our findings demonstrate that concentrated customers reduce the supplier firm’s SOA due to customer commitments.

Keywords: Customer Concentration, Capital Structure, Cash Flow Risk, Relationship-Specific Investments

JEL Classification: G32, G33, L14

Suggested Citation

Rehman, Obaid Ur and Liu, Xiaoxing and Wu, Kai and Zhu, Ziyan, Customer Concentration and Speed of Capital Structure Adjustments (April 22, 2021). Available at SSRN: https://ssrn.com/abstract=3769657 or http://dx.doi.org/10.2139/ssrn.3769657

Obaid Ur Rehman (Contact Author)

Southeast University ( email )

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

Xiaoxing Liu

Southeast University - School of Economics and Management

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

Kai Wu

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Ziyan Zhu

Southeast University - School of Economics and Management

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

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