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Customer concentration, managerial risk aversion, and hostile takeover threats

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  • Chatjuthamard, Pattanaporn
  • Jiraporn, Pornsit
  • Lee, Sang Mook
  • Sarajoti, Pattarake

Abstract

Exploiting a unique measure of takeover vulnerability principally based on the staggered passage of anti-takeover state legislations, we investigate how customer concentration is influenced by the discipline of the market for corporate control, which is widely regarded as a crucial instrument of external corporate governance. Our results demonstrate that more takeover exposure raises customer concentration considerably. Specifically, a rise in takeover susceptibility by one standard deviation increases customer concentration by 8.10%− 9.16%. When insulated from the discipline of the takeover market, risk-averse managers prefer to live a quiet life, trying to reduce firm risk. Consequently, they seek to lower customer concentration as a high level of customer concentration is risky. Therefore, firms more exposed to hostile takeovers exhibit higher customer concentration. Further analysis including entropy balancing, propensity score matching, and instrumental-variable analysis validates the results. Our study is the first to link customer concentration to the market for corporate control.

Suggested Citation

  • Chatjuthamard, Pattanaporn & Jiraporn, Pornsit & Lee, Sang Mook & Sarajoti, Pattarake, 2024. "Customer concentration, managerial risk aversion, and hostile takeover threats," The Quarterly Review of Economics and Finance, Elsevier, vol. 95(C), pages 268-279.
    • Handle: RePEc:eee:quaeco:v:95:y:2024:i:c:p:268-279
    DOI: 10.1016/j.qref.2024.04.004
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    More about this item

    Keywords

    Customer concentration; Takeover market; Market for corporate control; Corporate governance; Agency theory; Quiet life hypothesis;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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