Customer concentration, managerial risk aversion, and hostile takeover threats

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

The Quarterly Review of Economics and Finance, 2024, vol. 95, issue C, 268-279

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.

Keywords: Customer concentration; Takeover market; Market for corporate control; Corporate governance; Agency theory; Quiet life hypothesis (search for similar items in EconPapers)
JEL-codes: G34 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:95:y:2024:i:c:p:268-279

DOI: 10.1016/j.qref.2024.04.004

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