Customer Concentration, Leverage Adjustments, and Firm Value

We examine the association between customer concentration and capital structure adjustment speed using a sample of listed firms in the U.S from 1977 to 2020. We find that the customer-concentrated firms have a lower speed of leverage adjustment. The decomposition of customer types identifies corporate customers as the driving force. Moreover, customer concentration affects leverage adjustment speed mainly through increased cash flow volatility and asset specificity. The negative association is more pronounced in firms with high relationship-specific investments and low switching costs for their customers. In addition, stock market reacts to leverage deviation strongly for firms with concentrated customers, implying that the investors impose larger discount on firms with high cash flow risks from major customers. Our findings highlight the vital role of customers as one of the key stakeholders in capital structure decisions