Empirical Study On The Financial Effect And Market Reaction Of Customer Concentration

The relationship of the enterprises, the market, the operating activities such as the research and development, production, sales and so on, and the financial activities such as financing, investment, income distribution and so on is close, integrated and inseparable. The enterprise is the main body of the market, whose existence is in order to meet the demand of the market; the market is the trading places of the enterprise which is the summation of the exchange relationship of the enterprise. Similarly, the operation and finance of the enterprise also influence and restrain each other, and the achievement of the operating and financial activities will be reflected through the market. For this reason, this article tries to combine the operation with the finance and market, in order to dynamically research the influence of customer concentration which is determined by the sales policy to the current and the next operating performance, the current and the next operating risk, as well as the capital market’s response to these, and provides a new empirical evidence for the relationship of the "operation-finance-market".The empirical research of this article takes the companies in the manufacturing sector listed in the Shanghai Stock Exchange and Shenzhen Stock Exchange in2007-2012as the research object, and the results shows that:(1) The customer concentration is significantly negative correlation with the gross profit margin and net return on assets, is significantly positive correlation with the accounts receivable turnover, and is significantly negative correlation with the total asset turnover. Namely with the improvement of customer concentration, the gross profit margin, net return on assets and total asset turnover will decline, but the accounts receivable turnover will rise.(2) The customer concentration is significantly negative correlation with the degree of operating leverage. Namely with the improvement of customer concentration, the operating risk will decline.(3)The customer concentration is significantly positive correlation with the price-to-sales ratio and price-to-earnings ratio, and the response of the capital market to customer concentration is active and positive.The research findings have reference value for enterprises when making operating decisions and financial decisions, and for investors when making investment decisions.(1) Both the operating performance and risk are falling at the same time due to the improvement of customer concentration, so the enterprises should make operating decisions and financial decisions on the basis of weighing comprehensively the expected return and affordable risk. If the enterprises’operating performance is good, but the operating risk is bigger, the main problem is to reduce the risk. In order to improve the customer concentration, they can take the way of reducing prices, improving service quality, providing business and cash discount so as to increase sales to the big customers and reduce sales to the small and medium-sized customers; If the enterprises’ operating risk is smaller, but the operating performance is not good, therefore the main problem is to improve the performance, then in order to reduce the customer concentration, they can cancel the price discount and other favorable conditions for the big customers and increase sales to the small and medium-sized customers.(2) If the enterprises’ financial risk is bigger, they should reduce the operating risk in order to control the total risk, then they can improve the customer concentration; If the financial risk of the enterprises is small, then the operating risk can be relatively larger, so they can reduce the customer concentration moderately.(3) The active and positive response of capital market to the customer concentration means that customer concentration gives out a signal to capital market, which shows investors can make investment decisions according to customer concentration and its changes.