Customer Concentration and Share Repurchase

Abstract

Prior studies document that customer concentration can influence both corporate risk and operating performance. On one hand, firms with greater uncertainties are less likely to make payout; however, on the other hand, firms with greater profitability are more likely to pay out. Thus, it is unclear how customer concentration affects corporate payout policy. This study extends the literature by examining the influence of customer concentration on corporate payouts. Specifically, I focus on how customer concentration affects corporate share repurchase and dividend decisions. I find that firms with concentrated customers are less likely to buy back shares and, if they buy back, they repurchase fewer amounts of shares. Furthermore, this effect is more pronounced in low maturity firms. The empirical results also document that the payment through share repurchase relative to dividends increases with customer concentration. This study sheds light on the role of customers in corporate payout decision.