Customer concentration and over-investment

Haomin Zhang, Zhijun Lin, Ming Liu and Kai Wang

Applied Economics, 2020, vol. 52, issue 46, 5035-5045

Abstract: This paper investigates the impact of customer concentration on a supplier firm’s over-investment behaviour. Based on a large sample analysis on the US market, we find that a supplier firm with higher degree of customer concentration is likely to over-invest beyond the optimal investment level determined by investment opportunities. We also reveal that the positive association between customer concentration and over-investment weakens when the largest customer is a government entity, when the duration of supplier–customer relationship extends, and when the supplier firm captures larger market shares in its industry.

Date: 2020
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DOI: 10.1080/00036846.2020.1752901

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