Customer concentration and the supplier firm’s cash flow risk: Evidence from China

We investigate how customer concentration impacts the supplier firm’s cash flow risk. Employing a merged database containing 1,503 Chinese firms for the period 2007–2020, we provide evidence that higher customer concentration enhances the supplier firm’s cash flow risk. This evidence still holds when we employ a battery of different techniques and robustness tests to mitigate endogeneity concerns. We further find that customer concentration increases the supplier firm’s cash flow risk by boosting the supplier firm’s trade credits and relation-specific investments, reducing its profit margin and receivables turnover, bringing about the potential risk of losing substantial future sales at once and being negatively affected by major customers’ poor financial conditions. JEL: G30; G32: L22