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Customer-base concentration and the transmission of idiosyncratic volatility along the vertical chain

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  • Mihov, Atanas
  • Naranjo, Andy

Abstract

This paper investigates the link between a firm's customer-base concentration and stock return volatility. We find that firms with more concentrated customer bases have higher idiosyncratic volatility. Further, we show significant variation in customer-base concentration effects across customer and supplier firm dimensions, including customer type, customer default probability, customer idiosyncratic volatility, customer customer-base concentration, extended trade credit, and industry product market competition. Our results are robust to potential endogeneity concerns, different estimation methodologies and volatility measures, among numerous other robustness checks. Overall, our results contribute to the understanding of idiosyncratic volatility sources in firm stock returns and provide new evidence on the transmission of firm-specific shocks in a supply-chain network environment.

Suggested Citation

  • Mihov, Atanas & Naranjo, Andy, 2017. "Customer-base concentration and the transmission of idiosyncratic volatility along the vertical chain," Journal of Empirical Finance, Elsevier, vol. 40(C), pages 73-100.
    • Handle: RePEc:eee:empfin:v:40:y:2017:i:c:p:73-100
    DOI: 10.1016/j.jempfin.2016.11.006
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    More about this item

    Keywords

    Customer-base concentration; Idiosyncratic volatility; Stock return volatility; Network connections; Supply chain;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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