Government customers, institutional investment horizons, and liquidity risk

Brian Boscaljon (), Hongrui Feng (), Yuecheng Jia and Qian Sun ()
Additional contact information
Brian Boscaljon: Penn State Behrend
Hongrui Feng: Penn State Behrend
Qian Sun: PricewaterhouseCoopers

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 1, No 10, 273-296

Abstract: Abstract Contributing to the literature on government suppliers’ market risk and liquidity, we document a negative association between the government customer concentration and suppliers’ stock liquidity risk. Our further analysis implies that the gathering of long-horizon institutional investors is an important channel through which government customers help to lower the suppliers’ stock liquidity risk. Long-horizon institutional investors prefer firms with safety net characteristics and transparent information environment. The procurement of government customers creates low-risk, long-term, cost-plus pricing contracts that enable suppliers to achieve stable growth and better performance. Government scrutiny also helps suppliers to attenuate information asymmetry. We also find that the negative association between the government customer concentration and suppliers’ stock liquidity risk is stronger during the financial crisis period. This implies that government customers lead to greater stock liquidity for suppliers during economic times when it is most valuable.

Keywords: Government customer; Institutional investors; Stock liquidity risk (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-020-00894-w

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