Do big customers influence listed firms’ performance? Based on supplier–customer relationships in China

Abstract

Using hand-collected data of the top five customers disclosed by Chinese listed firms in their annual reports, this paper examines the impact of supplier–customer relationships on firms’ operating performance using the framework of DuPont analysis. The empirical results show a significantly negative correlation between customer concentration and firm performance based on return on assets. The negative impact on performance results from the decrease of the gross profit margin and accounts receivable turnover. Meanwhile, suppliers have to pay more entertainment expenses to retain their main customers and bear more financial expenses because of defaults in payment of customers. These results rely on the closeness of supplier–customer relationships and their relative bargaining power. Customer concentration increases the turnover of accounting receivables and inventories in those industries with overcapacity. The overall results provide evidence of the impact of big customers on the supplier’s performance.