Effect Of Customer Concentration Research Articles

Competitive or collaborative? Customer concentration and real earnings management

PurposeEmerging markets are characterized by weak institutions and strong relationships, which give rise to different market characteristics in supply chain relationships. This study investigates the impact of customer concentration on suppliers' real earnings management.Design/methodology/approachBased on China's relationship-based transaction, this study selects 2007–2019 Shenzhen and Shanghai Stock Exchange A-share manufacturing listed companies as the research samples. The empirical analysis is derived from the ordinary least square regression model with industry and year fixed effects, and cross-sectional analysis is used for further analysis.FindingsIt is found that the higher the degree of customer concentration, the more likely a company is to engage in real earnings management mainly through discretionary expenses instead of accrual-based earnings management. Further research shows that when suppliers provide customers with higher commercial credit and make more relationship-specific investments, and when major customers are also major suppliers, the effect of customer concentration on real earnings management is more significant. It can be seen from the results that high customer concentration is beneficial for suppliers to cooperate with major customers in emerging markets.Originality/valueThis research expands the relationship between customer relationship-based transaction and earnings management from the perspective of collaboration. These conclusions are of great significance for market regulators to reform information disclosure related to customers and for participants to pay attention to the composition of major customers of the company.

The effect of customer concentration on stock sentiment risk

The effect of customer concentration on stock sentiment risk

Customer Concentration and Managerial Bad News Withholding

We investigate whether the presence of major corporate customers affects managerial bad news withholding behaviors. Using data from a large sample of U.S. firms, we find that firms with a more concentrated customer base have a greater tendency to withhold bad news. Furthermore, we show an amplified effect of customer concentration on bad news withholding for firms that rely more on major customers and an attenuated effect for firms whose major customers would face higher costs to switch suppliers. We also show that the effect of customer concentration on bad news withholding is weaker for firms with stronger auditor monitoring. Overall, we find that a concentrated customer base imposes performance pressure on managers, which induces them to withhold bad news.

Does the risk of major customer need to be balanced? The role of customer concentration in corporate governance.

In the operation and management of the company, major customers may affect a supplier firm's level of governance. The goal of our study is investigating whether a major customer acts as an important role in corporate governance in emerging markets and exposing the mechanism that how major customers affect corporate decision-making. There is a growing body of literature involving studies about the effect of customer concentration on firm performance of western countries. Few studies have recognized to what degree does customer concentration satisfy the sustainable development of supplier firm. Using a sample of Chinese listed firms, we found a nonlinear relationship between customer concentration and risk-taking, corporate policies and firm performance. Evidence shows that the effect of customer concentration in China resembles an inverted U-shaped curve and major customers are crucial in financial and investment policies. Our results help to provide a broader perspective on the role of major customers, giving a deep explanation about the role of customer concentration in corporate governance.

Firm Sustainable Growth during the COVID-19 Pandemic: The Role of Customer Concentration

ABSTRACT Due to the spread of coronavirus disease 2019 (COVID-19), business environmental uncertainty, a restricted flow of personnel and materials, and changes in consumer demand have impacted business operations and financial performance. This study investigates the relationship between COVID-19, customer concentration, and sustainable growth based on data from listed companies in China. The results reveal that COVID-19 has had a negative impact on sustainable growth, but customer concentration can mitigate this negative association. By emphasizing the moderating effect of customer concentration on the relationship between COVID-19 and sustainable growth, this study provides new insights for firms who are seeking to mitigate the negative shocks of COVID-19 and promote sustainable development.

Customer Concentration and Earnings Management: Evidence from the Sarbanes–Oxley Act

This paper investigates whether the level of customer concentration can moderate the effect of the Sarbanes–Oxley Act of 2002 (SOX) on the earnings management of U.S. corporations. Large customers can act as a mechanism for reducing agency problems by pressuring supplier firms to be more efficient. Large customers may act as certifying agents for a supplier, and they may reduce information asymmetries about the supplier. These two channels suggest that customer concentration may affect corporate earnings management and hence generate heterogeneity in the effects of SOX. This paper documents that SOX has led firms with low customer concentration to reduce accrual-based earnings management more than those with high customer concentration have. The effect of customer concentration is especially pronounced when firms are involved in higher relationship-specific investments. The results are robust to accounting for endogeneity and alternative measures of discretionary accruals and customer concentration.

The effect of customer concentration on supplier sustainable growth: evidence from China

ABSTRACT Due to the worldwide pandemic and ‘Stay at Home’ order, many firms have experienced challenges for supply chain management. As the key parts of supply chain management, customer concentration may have a detrimental or beneficial effect on supplier sustainable growth. Using a large sample of listed firms in China, we explore the effect of customer concentration on supplier sustainable growth. This study documents that customer concentration is negatively related to supplier sustainable growth and the adverse effect is salient when a supplier is not under government protection. Further analyses demonstrate that the results are robust to alternative measures and controlling for endogeneity problems. Finally, the path analysis shows that the adverse effect is partially driven by lowering innovation and increasing administration costs in supplier firms, suggesting that innovation and administration costs play a mediating role in the relationship between customer concentration and supplier sustainable growth.

Customer Concentration and Corporate Innovation: Effects of Financing Constraints and Managers’ Expectation of Chinese Listed Companies

Innovation capability of enterprises will greatly influence the current and future development of companies. This paper investigates the relationship between customer concentration and innovation capability of enterprises through the view of both the financing constraints and the expectation of managers. Based on the data of China’s A-share listed companies over the period from 2012 to 2016, several methods including system GMM, threshold model of fixed effects, and PSM are applied for empirical analysis. The results show that the innovation capability of listed companies in China are negatively correlated with the customer concentration. Higher customer concentration brings about stronger constraints from large customers on enterprises and greater dependence of enterprises on large customers, which result in weaker demand for innovation and lower investment in innovation. Meanwhile, the results demonstrate the double-threshold effect of financing constraints. The effect of customer concentration on innovation can be different in companies with low, medium, or high-financing constraints. Furthermore, optimistic expectations are more conducive to the reduction of customer concentration and the improvement of innovation. In addition, based on the perspective of the manager’s expectation, the research demonstrates the heterogeneous impact of manager’s expectation on the relationship between customer concentration and innovation capability.

Customer Concentration and Stock Price Crash Risk

We investigate whether the presence of major corporate customers affects firm stock price crash risk. Using data on a large sample of U.S. firms, we find that firms with a more concentrated customer base have a higher stock price crash risk. Further, we show an amplified effect of customer concentration on crash risk for firms that attach more importance to customer relations and an attenuated effect for firms with stronger third-party monitoring. Overall, we find that a concentrated customer base imposes performance pressure on managers. This induces them to withhold bad news, which ultimately results in future stock price crashes.

The Effect of Customer Concentration on CEO Risk-Taking Incentives

This paper examines the effect of customer base concentration (“CC”), which captures the extent to which sales to major customers account for a supplier’s total annual revenue, on the supplying firm’s CEO risk-taking equity incentives. Existing literature predominantly uses total annual revenue as a proxy for firm size or managerial decision difficulty without examining from whom the revenue is earned. My paper improves this design by decomposing total annual revenue into revenue from major customers and revenue from the rest based on the CC concept posited by Patatoukas (2012). As prior literature shows CC risk to be idiosyncratic (Dhaliwal et al., 2013) and modern risk-based asset pricing theories posit that idiosyncratic return volatility is not priced amongst the risk-neutral investors, CC risk is diversifiable at the shareholder level – hence, only the performance-related net-benefits (Patatoukas, 2012) of engaging in contractual relationships with a few major customers should determine the desirability of high CC for the risk-neutral investors. However, in the midst of deficient accommodation, a risk-averse, undiversified manager may exhibit risk-aversion towards the state of high CC. Thus, I expect the BOD to recognize this potential agency problem and provide more risk-taking incentives for a CEO who manages a highly concentrated customer base. Upon empirical investigation, I document that CC exerts a positive influence over the supplier’s CEO vega incentives, whereby the CEO is compensated for assuming additional CC risk as her equity wealth becomes an increasing function of the firm’s stock return volatility. Furthermore, I show that less risk-taking incentives are expected when the degree of product substitution difficulty is high or the supplier’s trade credit levels are low, illustrating that the predictability of CC over CEO equity incentives varies with the settings in which the suppliers and customers interact.

Untangling the relationship between customer concentration and R&D investment

This study examines the effect of customer concentration on a supplier’s R&D investment. By drawing on the arguments of resource dependence theory, we propose that customer concentration, which ind...

Customer Concentration and Earnings Management: Evidence from the SarbanessOxley Act

This paper investigates whether the level of customer concentration can moderate the effect of the Sarbanes–Oxley Act of 2002 (SOX) on the earnings management of U.S. corporations. Customer concentration can act as a mechanism for reducing agency problems by pressuring supplier firms to be more efficient. Large customers may act as certifying agents for a supplier, and they may reduce information asymmetries about the supplier. These two channels suggest that customer concentration may affect corporate earnings management and hence generate heterogeneity in the effects of SOX. This paper documents that SOX has led firms with low customer concentration to reduce accrual-based earnings management more than those with high customer concentration have. The effect of customer concentration is especially pronounced when firms are involved in higher relationship-specific investments. The results are robust to accounting for endogeneity and alternative measures of discretionary accruals and customer concentration.

The Effect of Customer Concentration on CEO Risk-Taking Incentives

The Effect of Customer Concentration on CEO Risk-Taking Incentives

Does Customer-base Structure Influence Managerial Risk-taking Incentives?

We find strong evidence that when a firm’s customer base is more concentrated, the firm’s CEO receives more risk-taking incentives in her compensation package. This finding is robust to numerous alternative measures, alternative specifications, alternative subsamples, and different attempts that mitigate endogeneity concerns. Further, the positive effect of customer concentration on CEO risk-taking incentive provision is more prominent when the CEO is more reluctant to take risks, when the firm has more investment opportunities, and when the firm is more prone to the costs of losing large customers. These findings are consistent with the notion that boards provide additional risk-taking incentives to offset the CEO’s aversion to the risk of non-diversified revenue streams, thereby preventing excessive managerial conservatism at the expense of value maximization.