Customer Concentration and Corporate Performance

Abstract

The reliance on large customers is common among Chinese listed companies, with nearly half of the companies trading with the top five customers exceeding 30%, and around 20% even exceeding 50%, thus, reasonable handling of customer relationships is an important part of a company's operation and strategy. This paper empirically investigates the effect of customer concentration on firm performance using a sample of Chinese A-share companies listed in the non-financial industry from 2007 to 2020. The results show that higher customer concentration tends to be accompanied by higher Tobin's Q, i.e., higher firm market value. In addition, research shows that although customer concentration is negatively correlated with firm ROA, high customer concentration binds the interests of customers and firms, and customers are more willing to provide firms with technical support and information such as industry insiders, which are invisible resources that bring higher market value to firms. This paper provides empirical evidence for enterprises about customer relationships in the strategic development of the firm, enriches the research on the impact of customer concentration on firm performance and expands the analytical perspective of firm performance from the market value of the firm, thus the findings of this study provides certain practical implications.