Customer concentration and management earnings forecast

Abstract

Customers are one of the key external stakeholders for a company. Using Chinese listed companies’ data from 2007 to 2015, this paper examines the impact of customer concentration on information disclosure from the perspective of management earnings forecast. Empirical results show that a more concentrated customer base induces companies to disclose more positive earnings forecast. In addition, the positive association between customer concentration and management earnings forecast is more pronounced with higher economic policy uncertainty. Further analyses reveal that companies issue more positive earnings forecast to reduce the financing risk and protect their relationship-specific investment. Also, customer concentration reduces the consistency of earnings forecast since the deviation of the forecast performance and the actual performance is greater. This paper enriches the literature on the determinants of management earnings forecast and the effects of stakeholders on corporate financial behaviour. Our findings also provide implications for investors, regulators, and various stakeholders to understand management earnings forecast decisions.