Customer Concentration, Bad News Withholding, and Stock Price Crash Risk

We investigate whether the presence of major corporate customers affects firm stock price crash risk. Using data on a large sample of U.S. firms, we find that firms with a more concentrated customer base have a higher stock price crash risk. Further, we show an amplified effect of customer concentration on crash risk for firms that attach more importance to customer relations and an attenuated effect for firms with stronger third-party monitoring. Overall, we find that a concentrated customer base imposes performance pressure on managers. This induces them to withhold bad news, which ultimately results in future stock price crashes.