Abstract
This study examines whether and how supplier concentration affects firm risk-taking. While the literature mostly focuses on customer concentration and firm risk-taking, it overlooks the role of suppliers. Based on a sample of Chinese listed firms from 2007 to 2020, we fill this gap by demonstrating that supplier concentration significantly increases firm risk-taking. Our findings remain robust to alternative measurement and endogeneity tests. Regarding the underlying channel, high inventory management efficiency (i.e., low transaction costs) amplifies the positive effect of supplier concentration on firm risk-taking. Additionally, this positive effect is more pronounced in industries more inclined to efficient business operations, specifically those with higher participation in Global Value Chains and with lower market monopoly power. Collectively, our results suggest that the hypothesis from the transaction cost perspective well explains the positive effect of supplier concentration on firm risk-taking.
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