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Customer-base concentration and the transmission of idiosyncratic volatility along the vertical chain

Atanas Mihov and Andy Naranjo

Journal of Empirical Finance, 2017, vol. 40, issue C, 73-100

Abstract: This paper investigates the link between a firm's customer-base concentration and stock return volatility. We find that firms with more concentrated customer bases have higher idiosyncratic volatility. Further, we show significant variation in customer-base concentration effects across customer and supplier firm dimensions, including customer type, customer default probability, customer idiosyncratic volatility, customer customer-base concentration, extended trade credit, and industry product market competition. Our results are robust to potential endogeneity concerns, different estimation methodologies and volatility measures, among numerous other robustness checks. Overall, our results contribute to the understanding of idiosyncratic volatility sources in firm stock returns and provide new evidence on the transmission of firm-specific shocks in a supply-chain network environment.

Keywords: Customer-base concentration; Idiosyncratic volatility; Stock return volatility; Network connections; Supply chain (search for similar items in EconPapers)
JEL-codes: G10 G30 (search for similar items in EconPapers)
Date: 2017
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Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

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