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Government customers, institutional investment horizons, and liquidity risk

Author

Listed:
  • Brian Boscaljon

    (Penn State Behrend)

  • Hongrui Feng

    (Penn State Behrend)

  • Yuecheng Jia

    (Chinese Academy of Finance and Development, Central University of Finance and Economics)

  • Qian Sun

    (PricewaterhouseCoopers)

Abstract

Contributing to the literature on government suppliers’ market risk and liquidity, we document a negative association between the government customer concentration and suppliers’ stock liquidity risk. Our further analysis implies that the gathering of long-horizon institutional investors is an important channel through which government customers help to lower the suppliers’ stock liquidity risk. Long-horizon institutional investors prefer firms with safety net characteristics and transparent information environment. The procurement of government customers creates low-risk, long-term, cost-plus pricing contracts that enable suppliers to achieve stable growth and better performance. Government scrutiny also helps suppliers to attenuate information asymmetry. We also find that the negative association between the government customer concentration and suppliers’ stock liquidity risk is stronger during the financial crisis period. This implies that government customers lead to greater stock liquidity for suppliers during economic times when it is most valuable.

Suggested Citation

  • Brian Boscaljon & Hongrui Feng & Yuecheng Jia & Qian Sun, 2021. "Government customers, institutional investment horizons, and liquidity risk," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 273-296, January.
    • Handle: RePEc:kap:rqfnac:v:56:y:2021:i:1:d:10.1007_s11156-020-00894-w
    DOI: 10.1007/s11156-020-00894-w
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    References listed on IDEAS

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    Cited by:

    1. Jian Wang & Yanhuang Huang & Hongrui Feng & Jun Yang, 2023. "The effect of customer concentration on stock sentiment risk," Review of Quantitative Finance and Accounting, Springer, vol. 60(2), pages 565-606, February.
    2. Huang, Jun & Han, Feifei & Li, Yun, 2023. "Government as major customer: The effects of government procurement on corporate environmental, social, and governance performance," Finance Research Letters, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Government customer; Institutional investors; Stock liquidity risk;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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