Customer Concentration, Managerial Ability, and Corporate Performance.

Guanghui Jin,Qingjuan Jiang,Xiaolin Liu

doi:10.3389/fpsyg.2021.814646

Abstract

We examined whether and how managerial ability affects the relationship between customer concentration and corporate performance. Based on a novel measure of managerial ability, we found that customer concentration has a significant negative effect on corporate performance, while managerial ability can mitigate this effect. The negative effect of customer concentration is only significant in the subsample of low ability and lower efficiency in asset utilization, while the moderating effect of managerial ability is significant for all levels of asset utilization efficiency and more significant for firms with a lower gross margin. The results are robust to numerous robustness tests and endogeneity concerns. Additional analysis of mechanisms shows that in addition to superior operating ability, competent managers select major customers who are more beneficial to their company and decrease the sensitivity of their research and development (R&D) investment to customers. These findings indicate that the heterogeneity of managerial ability plays an important role in the supplier–customer context when the supplier firm generally faces one or more concentrated customers.

Highlights

While a large volume of literature has investigated the relationship between customer concentration and corporate performance, the results are mixed
A limitation of this study is that we did not investigate the specific multifaceted nature of managerial ability at the manager level, while we focused on a comprehensive proxy of ability showing the efficiency in resource deployment at the firm level
Future studies may investigate the specific characteristics of managerial ability assisted by a cognitive or psychological methodology, further exploring whether the ability is matched at the supplier–customer level, and how the matching, if any, affects the relationship of customer concentration with corporate performance

Summary

INTRODUCTION

While a large volume of literature has investigated the relationship between customer concentration and corporate performance, the results are mixed. This study provides a mechanism to analyze how managerial ability mitigates the negative effect of customer concentration on corporate performance Besides their superior operating ability, able managers do not invest more in R&D to improve their product or service but select major customers who are more beneficial to their company and decrease the sensitivity of their R&D investment to customers. With a mature supplier–customer link, the key value drivers of customer-specific investment benefit supplier firms through decreased costs, increased operating efficiency, and technology sharing (Irvine et al, 2016) Another branch of research has provided evidence that customer concentration is detrimental to corporate performance, which we defined as the value entrenchment effect. We expected α1 in model (3) to be significantly negative following H1 and β3 in model (4) to be significantly positive according to H2

Summary Statistics

Baseline Results

CONCLUSION

DATA AVAILABILITY STATEMENT