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Customer concentration and financing constraints

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  • Ni, Jian
  • Cao, Xiyang
  • Zhou, Wei
  • Li, Jiali

Abstract

Major customers in strong bargaining position can exert pressure on dependent suppliers and adversely affect their financing conditions. Consistent with this prediction, our analysis shows that the concentration of customer bases can enhance the bargaining power of downstream customers in supplier-customer interactions, leading to the significant deterioration of financing constraints for upstream firms. We then introduce a novel machine-learning approach to analyze the heterogeneous effect of customer concentration. This allows us to identify approximately 15 % of the firms, especially those small non-SOEs, as most vulnerable to customer concentration as the bargaining effect dominates.

Suggested Citation

  • Ni, Jian & Cao, Xiyang & Zhou, Wei & Li, Jiali, 2023. "Customer concentration and financing constraints," Journal of Corporate Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923000810
    DOI: 10.1016/j.jcorpfin.2023.102432
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    References listed on IDEAS

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    1. Maretno Harjoto & Hoje Jo, 2011. "Corporate Governance and CSR Nexus," Journal of Business Ethics, Springer, vol. 100(1), pages 45-67, April.
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    Cited by:

    1. Hu, Miao & Jiang, Shenyang & Song, Dian & Han, Qianqian, 2024. "The influence of short-term managerial myopia on supply chain concentration: The moderating role of long-term incentives for the supervisory board," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 188(C).
    2. Ran, Rong & Zhang, Jie & Yang, Xiaoran & Chen, Yejing, 2024. "Can technological diversity drive firm resilience? Evidence from Chinese listed firms," Journal of Business Research, Elsevier, vol. 183(C).
    3. Xin Lyu & Subin Wen & Hui Li, 2023. "The Impact and Mechanism of Internal Informal Institutions on Green Innovation: Empirical Evidence from Chinese Listed Companies," Sustainability, MDPI, vol. 15(22), pages 1-26, November.
    4. Wang, Xi & Henshaw, Paul & S-K Ting, David, 2024. "Three-objective optimization of a concentrated photovoltaic thermoelectric system via student psychology-based optimization algorithm and an external archive strategy," Energy, Elsevier, vol. 304(C).
    5. Cao, Xiyang & Ni, Jian & Wang, Fei & Xu, Yue, 2023. "Does customer concentration affect corporate risk-taking? Evidence from China," Finance Research Letters, Elsevier, vol. 58(PA).
    6. Zhang, Da & Wang, Yuxia, 2024. "Can management tone predict the firm's decision on supply chain configuration?," Finance Research Letters, Elsevier, vol. 62(PB).
    7. Yu, Xiaojun & Li, Qiang & Zhang, Lin, 2024. "Major government customer and corporate environmental responsibility: Evidence from China," Journal of Business Research, Elsevier, vol. 183(C).
    8. Zhou, Lu Jolly & Kong, Weimin & Li, Yunshen, 2023. "Cross-listing and predation risk in product markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
    9. Zheng, Siyu & Zhang, Qihao & Zhang, Pengdong, 2023. "Can customer concentration affect corporate ESG performance?," Finance Research Letters, Elsevier, vol. 58(PB).
    10. Ni, Jian & Xu, Yue & Shi, Jia & Li, Jiali, 2024. "Product innovation in a supply chain with information asymmetry: Is more private information always worse?," European Journal of Operational Research, Elsevier, vol. 314(1), pages 229-240.

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