Customer concentration and corporate risk-taking

Yue Cao, Yizhe Dong, Diandian Ma, Li Sun

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
Article number100890
JournalJournal of Financial Stability
Volume54
Early online date14 May 2021
DOIs
Publication statusPublished - Jun 2021

Keywords

  • customer concentration
  • threshold effects
  • corporate risk-taking
  • governmental major customer

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