Exploring the impact of customer concentration on stock price crash risk

This paper, rooted in agency theory, explores the relationship between stock price crash risk and customer concentration within Iran, a developing nation. Using innovative indicators to measure corporate and government customers, the study addresses inconsistent findings in existing research and offers fresh insights into stock price crash risk dynamics. Focusing on 82 companies listed on the Tehran Stock Exchange from 2013 to 2020, the study employs panel data, multiple regression and three distinct metrics to measure customer concentration: the proportion of significant customer sales, the Herfindahl-Hirschman Index (HHI), and a Ranking Index based on substantial customer sales. The investigation reveals a noteworthy inverse relationship between the highest concentration level of corporate customer concentration (Ranking Index) and stock price crash risk. A similar inverse association is observed between the Ranking Index for government customer concentration and stock price crash risk. Moreover, institutional investors positively influence the correlation between corporate customer concentration and stock price crash risk but do not exert a discernible impact on the relationship between government customer concentration and stock price crash risk.

Mahla Afghahi, Farzaneh Nassirzadeh, Davood Askarany