Customer Concentration and Corporate Risk-taking

Journal of Financial Stability, Forthcoming

The University of Auckland Business School Research Paper Forthcoming

44 Pages Posted: 10 May 2021

See all articles by Yue Cao

Yue Cao

Hunan University - Business School

Yizhe Dong

University of Edinburgh Business School

Diandian Ma

University of Auckland Business School

Li Sun

Hunan University

Date Written: May 5, 2021

Abstract

This study empirically investigates the relationship between customer concentration and corporate risk-taking. We find that overall customer concentration significantly reduces corporate risk-taking. However, the relationship varies across different settings. Specifically, the negative relationship between customer-base concentration and corporate risk-taking is only significantly present in more marketized regions, more competitive industries, firms with lower market shares, less innovative and non-state-owned firms, and those without major governmental or state-owned-enterprise customers. Moreover, our panel threshold models indicate significant threshold effects. When customer-base concentration is below the first threshold (low concentration level), it is positively associated with corporate risk-taking. When customer-base concentration increases to above the second threshold, the association turns significantly negative, suggesting that a highly concentrated customer base prompts suppliers to take more precautionary measures and avoid excessive risk-taking. Overall, our findings suggest that the concentration of a supplier’s customer base significantly impacts its risk-taking behaviours.

Keywords: customer concentration; corporate risk-taking; governmental major customer; threshold effects

JEL Classification: G32

Suggested Citation

Cao, Yue and Dong, Yizhe and Ma, Diandian and Sun, Li, Customer Concentration and Corporate Risk-taking (May 5, 2021). Journal of Financial Stability, Forthcoming, The University of Auckland Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3840475 or http://dx.doi.org/10.2139/ssrn.3840475

Yue Cao

Hunan University - Business School ( email )

Changsha, Hunan 410082
China

Yizhe Dong (Contact Author)

University of Edinburgh Business School ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Diandian Ma

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Li Sun

Hunan University ( email )

2 Lushan South Rd
Changsha, CA Hunan 410082
China

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