The effect of customer concentration on firm risk

DOI: 10.5176/2251-1997_AF18.101

Authors: Rezaul Kabir, Nor Maziah

Abstract:

Customer concentration is a wide-spread phenomenon in many countries. Firms can enjoy operational efficiencies when dealing with major customers. But, additional costs and new uncertainties also arise. In this study, we examine the effect of customer concentration on firm risk. Analyzing a sample of US manufacturing companies from 2007 to 2015, we find that firms with concentrated customers experience an increase in risk. We also find that the negative consequence of relying on major customers is partially offset by good corporate governance.

Keywords: Customer concentration, firm risk, corporate governance.