The Effect of Customers Concentration on Company Risks

Document Type : Original Article


1 Associate Prof., Department of Management, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.

2 Instructor, Department of Accounting, Payame Nour University of Ramhormoz, Ramhormoz, Iran.


The companies with major customers can supply a considerable source of cash flows by selling a large portion of their products to them. Since the lack of purchase, loss, or bankruptcy of major customers can result in a significant reduction in cash flows in the company, thus the risk is the companies with major customers is higher than other companies. Thus, the present study aimed to investigate the effect of customer concentration on company risks. For this purpose, the effect of customer concentration on three criteria of stock price crash risk, bankruptcy risk, and employment risk was studied. The research sample included 127 companies listed in the Tehran Stock Exchange during 2011-2018. Multivariate regression models with panel data were used by the random-effects method to test the research hypotheses. The research findings indicated that customer concentration has a significant positive effect on stock price crash risk, bankruptcy risk, and employment risk. In other words, stock price crash risk, bankruptcy risk, and employment risk are higher in the companies where the concentration of major customers is higher. 


Abashi, A., & Kordestani, G. (2014). Investigating the Influence of Customer-Base Concentration on the Firm Financial Performance. Asset Management and Financing, 2(3), 81-92.
Ahmadpour, A., Shahsavari, M., amoozad Khalili, A. (2016). Investigation of Important Factors on Risk of Financial Bankruptcy. Empirical Studies in Financial Accounting, 13(51), 9-34.
Ak, B. K., & Patatoukas, P. N. (2016). Customer-base concentration and inventory efficiencies: Evidence from the manufacturing sector. Production and Operations Management, 25(2), 258-272.
Althman E.I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. Journal of Finance, 23(4), 589-609.
Banker, R. D., D. Byzalov, and J. M. Plehn-Dujowich. 2014. Demand uncertainty and cost behavior. The Accounting Review, 89 (3): 839-865.
Bei, L. Xu, ZH. (2017). Customer concentration and corporate payouts, Proceedings of the ASBBS 24th Annual Conference.
Campello, M., & Gao, J. (2017). Customer concentration and loan contract terms. Journal of Financial Economics, 123(1), 108-136.
Chang, H., Hall, C., Paz, M. (2017). Customer Concentration, Cost Structure, and Performance., Available at SSRN:
Chen, Y., Hu, G., Yao, A., & Zhao, J. (2019). Customer Concentration, Bad News Withholding, and Stock Price Crash Risk.Available at SSRN:
Chen, J., Hong, H., and Stein, J, (2001), Forecasting Crashes: Trading Volume, Past Returns, and Conditional Skewness in Stock Prices, Journal of Financial Economics, 61(1), 345–381.
Cen, L., E. L. Maydew, L. Zhang, and L. Zuo. 2017. Customer-supplier relationships and corporate tax avoidance. Journal of Financial Economics, 123 (2),377-394.
Cohen, D., & Li, B. (2020). Customer-Base Concentration, Investment, and Profitability: The U.S. Government as a Major Customer. The Accounting Review, 95(1), 101-131.
Dhaliwal, D., J. S. Judd, M. Serfling, and S. Shaikh. 2016. Customer concentration risk and the cost of equity capital. Journal of Accounting and Economics, 61 (1), 23-48.
Dhaliwal, D., Michas, P. N., Naiker, V., & Sharma, D. S. (2019). Greater reliance on major customers and auditor going concern opinions.ContempAccountRes.
Fakhari, H., Gafaricherati, M. (2018). The Effects of Customer Concentration Risk on the Cost of Equity in the Listed Companies of Tehran Stock Exchange (TSE). Iranian Journal of Trade Studies, 22(87), 101-124.
Gao, W., Li, Q., and Drougas, A, (2017), Ownership Structure and Stock Price Crash Risk: Evidence from China, Journal of Applied Business and Economics, 19(4), 65-78.
Holzhacker, M., R. Krishnan, and M. D. Mahlendorf. 2015. The impact of changes in regulation on cost behavior. Contemporary Accounting Research, 32 (2),534-566
Huan, L., Zheng, G., & Li, D. (2017). Do big customers influence listed firms’ performance? Based on supplier–customer relationships in China, China Journal of Accounting Studies, DOI: 10.1080/21697213.2017.1385158
Huang, H. H.,G.J. Lobo, C. Wang, and H. Xie. 2016. Customer concentration and corporate tax avoidance. Journal of Corporate Finance, 72(1), 184-200.
Hui, K. W., S. Klasa, P. E. Yeung. (2012). Corporate suppliers and customers and accounting conservatism. Journal of Accounting and Economics, 53 (1-2), 115-135.
Hui, K., Liang, C., & Yeung, P. (2018). The effect of major customer concentration on firm profitability: competitive or collaborative?. Review of Accounting Studies, 24(1), 189-229.
Irvine, P.J., S. S. Park, and C. Yildizhan. 2016. Customer-base concentration, profitability, and the relationship life cycle. The Accounting Review, 91 (3), 883-906
Jung, B., W. J. Lee, and D. P. Weber. 2014. Financial reporting quality and labor investment efficiency. Contemporary Accounting Research, 31 (4),1047-1076.
Khajavi, S., Amiri, F. (2013). Recognition of Efficient Factors Affecting in companies’ bankruptcy using TOPSIS_AHP. Empirical Studies in Financial Accounting, 10(38), 69-90.
Khodadadi, V., Vessey, S., & Cheragenia, A. (2017). Investigation of the Relationship between Customer-Base Concentration and Audit Fees. Journal of Financial Accounting Knowledge, 4(1), 45-60.
Kim, J., Z. Wang., and L. Zhang. (2016). CEO overconfidence and stock price crash risk. Contemporary Accounting Research, 33 (4), 1720-1749.
Kordestani, G., Gholami roocheh, S. (2013). The Relationship between the Bargaining Power of Suppliers and Customers and Accounting Conservatism. Empirical Studies in Financial Accounting, 10(39), 29-56.
Krishnan, G. V., Patatoukas, P. N., & Wang, A. Y. (2018). Customer-base concentration: Implications for audit pricing and quality. Journal of Management Accounting Research, forthcoming.
Liang, C & Li-Yu, C (2016), The Effects of Customers’ Bargaining Power on Capital Expenditure and Earnings Management: Evidence from Taiwan, Accounting and Finance Research, 5(3), 12-28.
Liu, C., Xiao, Z., & Xie, H. (2019). Customer concentration, institutions, and corporate bond contracts,
Lee, S., & Jiraporn, P., & Song, H. (2020). Customer Concentration and Stock Price Crash Risk. Journal of Business Research, 110(1), 327-346.
Lu, y. (2016). Audit quality and financial distress: Evidence from China. WSEAS Transactions on Business and Economics,
Mamun, M., Balachandran, B., and Duong, H, (2019), Powerful CEOs and Stock Price Crash Risk, FIRN Research Paper No. 2791707.
Mihov, A., & Naranjo, A. (2017). Customer‐base concentration and the transmission of idiosyncratic volatility along the vertical chain. Journal of Empirical Finance, 40, 73– 100.
Moradi, M., Deldar, M., Sabermahani, M. (2019). The Effect of Concentration on Customer on the Corporate dividend payout policy. Financial Management Strategy, 7(1), 71-94.
Nikbakht, M., Sabermahani, M., Deldar, M. (2019). Investigating the Impacts of Concentration on Customer upon Capital Structure and Debt Maturity. Journal of Accounting Knowledge, 10(1), 39-65.
Patatoukas, P. N. 2012. Customer-base concentration: Implications for firm performance and capital markets. The Accounting Review, 87 (2), 363-392.
Piercy, N., Lane, N. (2006). The Underlying Vulnerabilities in Key Account Management Strategies. European Management Journal, 24(2-3), 151-162.
Rahmani, S., Gholami Jamkarani, R. (2016). Customer-base Concentration and Firm Performance. Management Accounting, 9(31), 81-91.
Raman, K., Shahrur, H. (2008). Relationship-specific investments and earnings management: Evidence on corporate suppliers and customers. The Accounting Review, 83(6), 1041-1081.
Salehi, M., Bazrgar, H. (2015). The Relationship between Earnings Quality and Insolvency Risk. Financial Management Strategy, 3(1), 113-140.
Sheybani Tezerji, A., Khodamipour, A., Pourheidari, O. (2018). Investigating the Effect of Customer Concentration on Tax Avoidance, Considering Firm's Market Share. Accounting and Auditing Review, 25(2), 215-232.
Sheybani Tezerji, A., Khodamipour, A. (2018). Investigating the Moderating Role of Real Earnings Management on the relationship between Customer Concentration and Tax Avoidance- Evidence from Tehran Stock Exchange. Journal of Accounting Knowledge, 9(2), 103-129.
Song, J., & Wang, X. (2019). Customer concentration and management earnings forecast. Economic and Political Studies,
Steve, C., Huang, Y., Li, N., & Yang, Z., (2016). Customer Concentration and Public Disclosure: Evidence from Management Earnings Forecasts. Unpublished working paper. The University of Houston.
Tang Y., Xie L., Li W., and Meng Y, (2019), Managerial Power, Ownership and Stock Price Crash Risk, International Conference on Management Science and Engineering Management, 49(1), 619-632.
Zhang, Y., Ke, Y., & Lee, W. (2018). Customer Concentration and Employment Risk in Supplier Firms. Available at SSRN: