Customer Concentration,Internal Control And Profit Stability

Profit Stability is a crucial indicator which enterprise managers and investors will pay attention to.Profit Stability reflects the business risk of the enterprise.The governance mechanism and the business decisions of the enterprise are both important to this enterprise's Profit Stability.Nowadays,the competition among enterprises is often considered as the competition of supply chains.And customer is the key factor of supply chain management.How the degree of dependence between an enterprise and its customers will impact business risk and performance has become a critical topic in academia.This paper uses customer concentration to measure the relationship and dependence between enterprises and customers and researches the influence of customer concentration on the stability of enterprise profit.By conducting an empirical analysis of the 2006-2016-year data of China's a-share manufacturing companies,several conclusions can be drawn:(1)The higher the customer concentration,the lower the internal control level of the enterprise.Under the customer's risk effect and governance effect,powerful customers will impede the internal control of the enterprise through partial management.(2)There is a positive correlation between customer concentration and profit volatility of enterprises.Powerful customers will increase the risk of the enterprise business by some interest-encroaching acts and by increasing investment in proprietary assets of the enterprise,causing customer risk effect exceeding governance effect and leading to exacerbating management's earnings management behavior.Such movements can also force enterprises to increase capital expenditure such as innovation investment,ending up with increasing the uncertainty of profit.(3)The higher the customer concentration,the worse the stability of enterprise profit.But this effect can be improved by internal control mechanism of the enterprise,which indicates that a wholesome internal control system can reduce the risk of business uncertainty,improve the company's ability to deal with the uncertain environment and ensure the stable operation of the enterprise.Hence weakening the impact of customer concentration on the stability of corporate profit.This research enriches the economic conclusions of customer concentration,the influencing factors of profit stability and the mechanism of internal control based on the existing literature.It conforms to the trend that enterprises should focus on supply chain management and provides empirical evidence to improve the control mechanism and relevant policies of listed company.This research also gives several advices on customer relationship management,marketing decision making and enterprise value creation to the enterprise,thus having a practical meaning to realize the transformation and upgrade of manufacturing industry structure and reformation of the supply side.