Customer Concentration and bank loan contracts: Evidence from the Tehran Stock Exchange

Document Type : Research Paper

Authors

1 Associate Prof., Department of Accounting, Faculty of Humanities, Tehran East Branch, Islamic Azad University, Tehran, Iran

2 Ph.D. Candidate, Department of Accounting, Tehran South Branch, Islamic Azad University, Tehran, Iran

Abstract

Objective: The variables of customer concentration and bank loan contracts can affect corporate finance activities, and customer concentration may increase corporate returns.
Methods: Under this study, the relationship between customer concentration and bank loan contracts have been investigated first and then the moderating effect of financial status variables and accounts payable on relationship between these variables have been measured. The statistical population of the study consisted of all listed companies in the Tehran Stock Exchange with regard to specified conditions, over the period of 6 years from 2011 to 2015.
Results: The results of the research show that there is a negative and significant relationship between customer concentration and bank loans has. In addition, the financial situation and accounts payable exacerbate the negative relationship between customer concentration and corporate bank lending.
Conclusion: With increasing customer concentration, banks are likely to consider tightening rules for corporations, and as a result, firms face financing constraints. Also the increase in the financial leverage and accounts payable that are important indicators in the decision making of banks for lending makes financial providers skeptical and therefore they would try to impose further restrictions on companies through getting collateral.
 
 

Keywords

References

References
Banerjee, S. & Dasgupta, S. & Kim, Y. (2008). Buyer_supplier relationships and the stakeholder theory of capital structure. The Journal of Finance, 63 (5), 2507-2552.
Banimahd, B. & Yaghob Nezhad, A. & Vahidikia, A. (2015). Product market power and cost of equity. Quarterly Journal of Accounting and Auditing Research, 7 (24), 107-118. (in Persian)
Bharath, S., & Dahiya, S., & Saunders, A., & Srinivasan, A. (2006). Lending relationship and loan contract terms: does size matter? Working Paper. Available in: https://www. newyorkfed.org/medialibrary/media/research/conference/2006/cffi/Dahiya.pdf.
Bolton, P. & Scharfstein, D. (1998). Corporate finance, the theory of the firm, and organizations. Journal of Economic Perspectives, 12 (4), 95-114.
Campello, M. & Gao. J. (2017). Customer Concentration and Loan Contract Terms. Journal of Financial Economics, 123 (1), 108-136.
Chava, S. & Roberts, M. (2008). How does financing impact investment? The role of debt covenants. Journal of Finance, 63 (5), 2085-2121.
Cohen, D. & Li, B. & Li, N. & Lou, Y. (2016). Major government Customers and Loan Contract Terms. Available in: http//ssrn,com/abstract=2868761.
Collier, B., & Haughwout, A., & Stewart, M., & Kunreuther, H., & Kerjan, E. (2016). Firms age and size and the financial management of infrequent shocks, Working Paper.
Cowley, P. R. (1988). Market Structure and Business Performance: an Evaluation of buyer/seller power in the PIMS database. Strategic Management Journal, 9 (3), 271- 278.
Fadaee, M. & Sarraf, F. & Hemmati, H. (2016). Investigate the relationship between customer focus and cost of equity. The Studied of Economics, Financial Management, and Accounting, 2 (3), 186-193. (in Persian)
Fee, C. E. & Thomas, S. (2004). Sources of gains in horizontal mergers: evidence from customer, supplier, and rival-rms. Journal of Financial Economics, 74 (3), 423-460.
Filsaraee, M. & Saeedi, H. & Bichranlo, S. (2016). Risk of Focusing Customers and Its Effects on Capital Cost. The Second National Conference on New Approaches in Management, Economics and Accounting, Mazandaran- Babol, Research Institute of Komeh, Science and Education, 1-10. (in Persian)
Ghaffari Ashtiani, P. (2007). Affiliate Marketing Assist and Customer Relationship Management. Magazine Tadbir, 181, 54-57. (in Persian) Graham, J. R. & Li, S. & Qiu, J. (2008). Corporate misreporting and bank loan contracting. Journal of Financial Economics, 89 (1), 44-61.
Graham, J. R., Li, S., Qiu, J., (2008), Corporate misreporting and bank loan contracting. Journal of Financial Economics, 88 (3), 44–61.
Hasan, I. & Song, L. (2014). Public disclosure and bank loan contracting: evidence from emerging markets. Asian Review of Accounting, 22 (1), 2-19.
Irvine, P. J. & Park, S. S. & Yıldızhan, C. (2016). Customer-Base Concentration, Profitability, and the Relationship Life Cycle. The Accounting Review, 91 (3), 883-906.
Jackson, B. (1985). Winning and Keeping Industrial Customers: The Dynamics of Customer Relationships. Lexington, MA, Lexington Books.
Johnstone, D. (2016). The effect of information on uncertaininty and the cost of capital. Contemporary Accounting Capital, 33 (2), 752-774.
Kale, J. & Shahrur, H. (2007). Corporate capital structure and the characteristics of suppliers and customers. Journal of Financial Economics, 83 (2), 321-365.
Kalwani, M. U. & Narayandas, N. (1995). Long-Term Manufacturer-Supplier Relationships: Do They Pay off For Supplier Firms? Journal of Marketing, 59 (1), 1-16.
Kelly, B., Lustig, H., Van Nieuwerburgh, S. (2013). Firm volatility in granular networks. NBER Working Paper, No. 19466.
Khanlari, A. & Sohrabi, B. (2009). Causal Model of Excellence in Relationship with Organization's Customers. Journal of Management Science of Iran, 4 (11), 131-151. 
(in Persian)
Khodadadi, V., Visi, S., & Cheraghinya, A. (2017). Investigation of the Relationship between Customer-Base Concentration and Audit Fees. Financial Accounting Knowledge, 4 (1), 45-60. (in Persian)
Kim, J. & Lee, W-M. (2017). How Does Board Structure Affect Customer Concentration?. Paper presented at 2017 FMA Asia/Pacific Conference, Taipei, Taiwan.
Kinney, M. & Wempe, W. (2002). Further Evidence on The Extent and Origins of JIT’s Profitability Effects. The Accounting Review, 77 (1), 203-225.
Kordestani, GH. & Abashi, A. (2014). Investigating the Impact of Customer Focus on Corporate Financial Performance. Quarterly Journal of Asset and Finance Management, 2 (3), 81-92. (in Persian)
Kordjazi, M. (2017). Investigating the Risk of Focusing on Customers and the Quality of Earnings on the Cost of Capital Stock in Companies Acquired in Tehran Stock Exchange. First National Conference on the Application of New Research in the Humanities. (in Persian)
Kumar, N. (1996). The Power of Trust In Manufacturer Retailer Relationships. Harvard Business Review, 74 (6), 92-106.
Lin, C., Ma, Y., Malatesta, P. & Xuan, Y. (2011). Ownership structure and the cost of corporate borrowing. Journal of Financial Economics, 100 (1), 1-23.
Lin, Ch., Tsai, W., Hasan, I. & Tuan, L. (2018). Private benefits of control and bank loan contracts. Journal of Corporate Finance, 4 (1), 34-52.
Murfin, J. & Njoroge, K. (2015). The implicit costs of trade credit borrowing by large -rms. Review of Financial Studies, 28 (1), 112-145.
Najdi, S., Khordiar, S. & Molaeepor, M. (2015). Investigate the relationship between the amount of collateral and audit quality with an emphasis on institutional ownership. The 5th conference on Economic and Agricultural Management, Anzali Free zon, International Center for Academic Communication, Enzymes Development, Anzali, Iran. (in Persian)
Patatoukas, P. N. (2012). Customer-base concentration: Implications for firm performance and capital markets. The Accounting Review, 87 (2), 363–392.
Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. Review of financial studies, 22 (1), 435-480.
Pillai, K. G. & Sharma, A. (2003). Mature Relationships: Why Does Relational Orientation Turn into Transaction Orientation? Industrial Marketing Management, 32 (8), 643-651.
Porter, M. E. (1974). Consumer Behavior, Retailer Power and Market Performance in Consumer Goods Industries. Review of Economics and Statistics, 56 (4), 419–436.
Rahaman, M. M. & Zaman A. A. (2013). Management quality and the cost of debt: Does management matter to lenders? Journal of Banking and Finance, 37 (3), 854-874.
Sarkar, S. (2013). Product–Market Flexibility and Capital Structure. The Quarterly Review of Economics and Finance, 54(1), 111-122.
Scherer, F. M. (1970). Industrial Market Structure and Economic Performance. Chicago, IL, Rand McNally.
Sheybani Tezerji, A., Khodamipour, A., & Pourheidari, O. (2018). Investigating the Effect of Customer Concentration on Tax Avoidance, Considering Firm's Market Share. Journal of Accounting and Auditing Review, 25 (2), 215-232. (in Persian)
Shleifer, A. & Vishny, R. (1992). Liquidation values and debt capacity: A market equilibrium approach. Journal of Finance, 47 (4), 1343–1366.
Smith, D. J. & Jianguo, C. & Hamish, A. (2008). The Relationship between Capital Structure and Product Markets: Evidence from New Zealand. Available in: www.ssrn.com.
Tehrani, R. & Ramezaninukalaii, M. (1999). A Survey on the Validity of Tehran Stock Exchange Policy for Increasing the Cash Capital of Companies Accepted in the Exchange. Journal of Accounting and Auditing Review, 7 (1), 110-134. (in Persian)
Titman, S. & Wessels, R. (1988). The determinants of capital structure choice. Journal of Finance, 43 (1), 1–19.
Titman, S. (1984). The effect of capital structure on a firm’s liquidation decision. Journal of Financial Economics, 13 (1), 137–151.
Wang, J. (2012). Do Firms' Relationships with Principal Customers/Suppliers Affect Shareholders' Income?. Journal of Corporate Finance, 18 (4), 860-878.
Accounting and Auditing Review
Volume 25, Issue 3
2018
Pages 327-346

Files

Share

How to cite

Statistics