Digitalization through supply chains: Evidence from the customer concentration of Chinese listed companies

Abstract

This study investigates an observed contradiction between economic theory and empirical trends, specifically, whether digitalization reduces customer concentration. Previous research has primarily examined the impact of digital elements from a macro perspective. Using data from China's listed companies from 2012 to 2020, we examine the effect of digitalization on customer concentration using our micro-founded production network model, which explores the endogenous selection mechanism of customers for suppliers. Upon controlling for firm entry and exit, we conclude, theoretically and empirically, that firms with higher levels of digitalization have lower customer concentration, since they have less information asymmetry with their suppliers and higher “technology matching efficiency” to attract more customers. Evidence for the transmission of digital elements along the supply chains is also provided. Our findings underscore that firms with higher digitalization suppliers can enhance their own digitalization and attract a larger customer base, emphasizing the importance of supply chains in digitalization.