Does Customer Clientele Shape Investor Clientele?

Abstract

This paper investigates how a firm's customer base shapes its investor clientele. We show that more concentrated customer base is associated with higher holdings of short-term, but not long-term, institutional investors. The results remain unchanged after addressing endogeneity concerns and considering short sellers as short-term investors. This evidence is consistent with the public information transfer channel, where short-term investors are able to process public, but slowly diffusing, supply chain information ahead of other market participants. Further evidence suggests that the link between customer concentration and short-term institutional ownership is stronger in the environment of high information asymmetry, as well as after the passage of Reg FD reform. Overall, our results suggest that the implications of a concentrated customer base extend beyond their impact on the product market space and key firm characteristics, and affect shareholder composition.