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Customer concentration and over-investment

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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… Click to show full 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.

Keywords: supplier firm; concentration investment; investment; customer concentration; customer

Journal Title: Applied Economics
Year Published: 2020

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