Customer Concentration,Market Competition And The Cost Of Equity Capital

With the advent of the era of big data,the market environment has become increasingly complex and ever-changing.The business philosophy of traditional enterprises has also gradually shifted from single-core development to upstream and downstream cooperation in the supply chain.This kind of shift results a phenomenon of key clients which provides suppliers a variety of positive effects,such as: reducing costs,making stable sales,enhancing corporate reputation,but the high customer concentration will also threaten the development of the suppliers in the future.The impact of supplier business risk is one of the important performances.For companies with high customer concentration,pressured by the bargaining power of the buyer or the oligarchy,they will suffer huge threats of being invaded and losing their business during the operations,which will eventually lead to an increase in the business risk of the enterprise.Further,the business risk of the enterprise will affect the cost of equity financing,thus affecting the company's financing efficiency.From this point of view,researches on customer concentration and equity financing costs have important practical significance.Aiming at the above problems,this paper conducts in-depth research on it through theoretical analysis and empirical research,and.This paper analyzes the relationship between customer concentration and the cost of equity capital based on the customer characteristics data from 2009 to 2014 in China.Although Chinese regulatory agencies require listed companies to disclose data on major customers since 2007,the number of observations before the 2009 in the CSMAR database is very small,so the sample period of the paper began in 2009.In the elimination of financial,insurance,lack of financial data,a total of 4158 initial samples were obtained.The results show that customer concentration is significantly positive with the cost of capital,and it affects the cost of capital through the operating risk.This paper further finds that the positive relation between customer concentration and the cost of capital is mainly in the product markets with higher competition,suggesting that higher market competition will increase the operating risk of customer concentration,it will increase the possibility of the supplier losing the major customer due to the main customer worrying about the supplier's development prospect and choosing to terminate the cooperation with the supplier.And it further aggravates the operation risk of the enterprise,which results the higher cost of capital.This paper further examines the relationship between the switching cost and the cost of equity capital and the way of the impact of customer concentration on the cost of equity capital.The results show that the switching cost(lower market share)is conducive to ease positive relationship between the customer concentration and the cost of equity capital.This may be due to the fact that the customers of those companies with lower competitive status(lower market share)have lower switching costs.So,for those companies with high customer concentration will conduct effective corporate governance to send good news to customers to maintain their relationships with large customers and prevent them from switching to other alternative companies.What's more,those companies will voluntarily disclose more information and increase the transparency of their information,which will result in a reduction in the cost of equity capital.In addition,customer concentration affects the cost of equity capital by increasing the systemic risk rather than the unique risk that the firm faces.Finally,this paper also carried out related robustness tests,including: redefining the cost of equity capital;research sample confined to manufacturing;propensity score matched sample analysis;instrumental variables regressions and so on.The test results are in line with expectations,verifying the accuracy of the research conclusionsThis paper studies the relationship between customer concentration and the cost of equity capital,which is divided into six parts.The first part introduces the research topic of this paper,named introduction,elaborates the background and significance of the research,explains the research methods and main contents of the article in detail,and the research idea and framework of this paper are illustrated by drawing flow chart.The second part is literature review.First,we reviewed and analyzed the literature on customer concentration and the cost of equity capital.Secondly,we summarize the literature about the relationship between customer concentration and the cost of equity capital to and introduce our research based on the evaluation of these documents.The third part is the theoretical summary of the impact of customer concentration on the cost of equity capital,defining customer concentration,the cost of equity capital and the concept of product market competition,and summarizing the relevant theoretical basis for the interpretation.The fourth part is the theoretical analysis and research hypotheses,analyzing the impact of customer concentration on the cost of equity capital based on business risk and develop research hypotheses.Then we establish research model,based on the previous study of scholars and knowledge of measurement.The fifth part is the empirical test of customer concentration and equity financing costs.This part analyzes the impact of customer concentration on the cost of equity capital,further studies how the product market competition affects the relationship between the two,and conducts a robust test.The final part is the conclusions,policy recommendations,shortcomings and prospects of this study.