The Profitability and Pricing of Major Customers

Gosman, Marty; Kelly, Trish; Olsson, Per; Warfield, Terry D.

doi:10.1023/b:rast.0000013631.48714.c1

Cited by 83 publications

(38 citation statements)

References 20 publications

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“…Accordingly, my study contributes to research on inter-organizational relationships and intangibles as sources of firm value (e.g., Amir and Lev 1996;Lev 2001;Gosman, Kelly, Olsson, and Warfield 2004). My findings also add to the growing evidence that investors sometimes underreact to the forward-looking content of fundamental variables (e.g., Bernard and Thomas 1990;Sloan 1996) and to the evolving literature on investors" limited attention to interfirm links (e.g., Menzly and Ozbas 2006;Cohen and Frazzini 2008).…”

Section: Introductionmentioning

confidence: 82%

Customer-Base Concentration: Implications for Firm Performance and Capital Markets

Patatoukas

2011

The Accounting Review

535

425

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In this paper, I examine whether and how customer-base concentration affects supplier firm performance and stock market valuation. To this end, I compile a comprehensive sample of supply chain relationships and introduce a measure, labeled CC, to capture the extent to which a supplier"s customer base is concentrated. In contrast to the conventional view of customer-base concentration as an impediment to firm profitability, I document a positive contemporaneous association between CC and accounting rates of return, which suggests that efficiencies accrue to suppliers with concentrated customer bases. Consistent with a cause-and-effect link between customer-base concentration and firm performance, analysis of intertemporal changes demonstrates that CC increases predict efficiency gains in the form of reduced operating expenses per dollar of sales and enhanced asset utilization. Using stock returns tests, however, Ifind that investors systematically underreact to the implications of changes in customer-base concentration for future firm fundamentals when setting stock prices. Over the thirty-year sample period studied, a zero-investment trading strategy that exploits investors" underreaction yields abnormal returns in the region of 10 percent per year.

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Section: Introductionmentioning

confidence: 82%

Customer-Base Concentration: Implications for Firm Performance and Capital Markets

Patatoukas

2011

The Accounting Review

535

425

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“…In the earlier research has also observed that the firm's power in networks and its exclusivity strengthen firm's profitability (Galbraith and Stiles 1983) and the same concluded Gosman's et al (2004) studies when they investigated the capital intangibles and the supplier's major customers. They showed that the customer concentration as an advantage of supply chain arrangement increases operating profitability and further, that the market recognizes this advance.…”

Section: Literature Review and Hypothesismentioning

confidence: 89%

“…Our first measure is the state of the firm's main customer (BIGCUS). However, also defensive literature exists for the positive influence of the customer concentration on a firm's performance (Galbraith and Stiles 1983;Gosman's et al 2004;Kohlbeck 2011;Pfeffer andSalancik 1978: Dill 1981). Furthermore, there are studies where they could identify both positive and negative effects, depending on company's age (Irvine et al 2016) and the ratio of the firm's performance (Patatoukas 2012).…”

Section: Customer Concentration and Firm Performancementioning

confidence: 99%

“…Already, it's effect for the profitability of the company is examined in recent years (Balakrishnan et al 1996;Campello and Gao 2014;Gosman and Kohlbeck 2009;Gosman's et al 2004;Huang et al 2014;Irvine et al 2016;Kelly and Cosman 2000;Kohlbeck 2011;Patatoukas 2012;Snyder 1998). The main research has been done in the manufacturing framework (Becchetti and sierra 2003;Irvine et al 2016;Patatoukas 2012;Snyder 1998) and in the banking business (Campello and Gao 2014;Kelly and Gosman 2000) leaving the constantly increasing service sector outside of the research.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Customer Concentration and Profitability in Private Healthcare Companies

Holopainen¹,

Niskanen²,

Rissanen³

2016

Proceedings of the 5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016)

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Previous studies suggest that the customer size and range have implications for the company's performance. In this paper, we investigate the impact of customer concentration on a firm's performance in the framework of healthcare companies. The base of this paper is the questionnaire data of the private Finnish health care companies. We shed light on one corner of diverse and complex combination of the profitability process in the small companies. Thus, we address that the customer, beside other factors, has an influence on a firm's performance. Especially, in small health care companies as most of this research companies are, one or few big customers is a common form of customer base. We found that the customer concentration of the company positively directs the company's performance. Furthermore, some of the contextual factors such as desire to grow contributed to the company's performance too.

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“…A growing body of research in the area of supply chain analyses examines the nature and consequences of customer-supplier relationships in the economy and finds that these relationships do matter in various contexts. On one hand, strong buyers can exploit seller-created economic values by asking for lower prices, higher quality, or more services (Porter 1979;Cool and Henderson 1998;Kim 1996;Gosman et al 2004;Gosman and Kohlbeck 2009). On the other hand, major customers can benefit a supplier firm via reducing selling, general, and administrative expenses; enhancing operating efficiencies and asset utilization (Patatoukas 2012;Ak and Patatoukas 2015); lowering audit complexity and then audit fees (Krishnan et al 2015); and certifying supplier project quality (Johnson et al 2010).…”

Section: Background and Literature Reviewmentioning

confidence: 99%