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Customer concentration, managerial risk aversion, and independent directors: A quasi-natural experiment

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  • Chatjuthamard, Pattanaporn
  • Kijkasiwat, Ploypailin
  • Jiraporn, Pornsit
  • Lee, Sang Mook

Abstract

Exploiting a quasi-natural experiment based on an exogenous regulatory shock, we explore the effect of board independence on customer concentration. Our difference-in-difference estimates reveal that stronger board independence raises customer concentration. Specifically, a majority of independent directors on the board raise customer concentration by 12.98%− 32.43%. Motivated by managerial risk aversion, managers are in favor of lower customer concentration, resulting in a sub-optimal level of risk-taking. More effective governance in the form of more independent directors increases customer concentration, bringing it closer to the level consistent with shareholder wealth maximization. Additional analysis including propensity score matching and entropy balancing validates the results. Our study is the first to examine the effect of independent directors on customer concentration.

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  • Chatjuthamard, Pattanaporn & Kijkasiwat, Ploypailin & Jiraporn, Pornsit & Lee, Sang Mook, 2023. "Customer concentration, managerial risk aversion, and independent directors: A quasi-natural experiment," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 358-368.
    • Handle: RePEc:eee:quaeco:v:89:y:2023:i:c:p:358-368
    DOI: 10.1016/j.qref.2022.10.002
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    More about this item

    Keywords

    Customer concentration; Board independence; Independent directors; Sarbanes-Oxley; Quasi-natural experiment; Exogenous shock;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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