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Customer concentration and stock price crash risk

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  • Lee, Sang Mook
  • Jiraporn, Pornsit
  • Song, Hakjoon

Abstract

We investigate the impact of customer concentration on stock price crash risk. Customer concentration may represent a source of significant cash flow and business risk for supplier firms or benefit supplier firms in terms of efficient product, inventory and supply chain management. Using a large sample of firms for the period 1977–2016, we find that corporate customer concentration is positively associated with stock price crash risk. We find, however, that government customer concentration is negatively associated with stock price crash risk. Further analyses demonstrate that our results are robust to potential endogeneity and reverse causality concerns. In the cross-sectional analyses, we find that the likelihood that a supplier firm with a concentrated customer base experiences higher crash risk is attenuated by lower switching cost and is accentuated when the degree of information asymmetry is high.

Suggested Citation

  • Lee, Sang Mook & Jiraporn, Pornsit & Song, Hakjoon, 2020. "Customer concentration and stock price crash risk," Journal of Business Research, Elsevier, vol. 110(C), pages 327-346.
    • Handle: RePEc:eee:jbrese:v:110:y:2020:i:c:p:327-346
    DOI: 10.1016/j.jbusres.2020.01.049
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    More about this item

    Keywords

    Corporate customer concentration; Government customer concentration; Stock price crash risk; Customer switching cost; Information asymmetry;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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