Customer concentration and over-investment. Issue 46 (1st October 2020)

• Record Type: Journal Article
• Authors: Zhang, Haomin; Lin, Zhijun; Liu, Ming; Wang, Kai
• Is Part Of: Applied economics. Volume 52:Issue 46(2020)
• Page Start: 5035
• Page End: 5045
• Publication Date: 2020-10-01
• Subjects: Customer concentration -- over investment -- powerful customer; G31 -- L14; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2020.1752901
• Languages: English
• ISSNs: 0003-6846

Abstract

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.