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Supplier concentration and firm risk-taking: Transaction cost perspective

Author

Listed:
  • Zhang, Wan
  • Tao, Qizhi
  • Feng, Qingchen
  • Sun, Yicheng

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.

Suggested Citation

  • Zhang, Wan & Tao, Qizhi & Feng, Qingchen & Sun, Yicheng, 2024. "Supplier concentration and firm risk-taking: Transaction cost perspective," Economic Modelling, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:ecmode:v:133:y:2024:i:c:s026499932400018x
    DOI: 10.1016/j.econmod.2024.106662
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    More about this item

    Keywords

    Supplier concentration; Firm risk-taking; Transaction cost perspective;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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