Suppliers' Product Market Competition, Customer Concentration, and Cost Structure

Hsihui Chang · Curtis M. Hall · Michael Thomas Paz

34 citations0/0 files storedJournal of Management Accounting Research

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Accounting and Organizational Management Merger and Competition Analysis Supply Chain and Inventory Management

Abstract

ABSTRACT We examine how suppliers' product market competition influences the relation between customer concentration and cost structure. Analyzing cost data from a sample of manufacturing firms, we find that suppliers exhibit more rigid cost structure when both product market competition and customer concentration are high. In further analysis, we find that the effect of competition on the relationship between customer concentration and cost structure is isolated to the COGS and COGM. Our results suggest that suppliers trade off the downside risk of having fixed costs that cannot be reassigned with the potential upside benefit of meeting major customer demands. JEL Classifications: M41; L25.

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References

1973Risk, Return, and Equilibrium: Empirical Tests 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 1979Transaction-Cost Economics: The Governance of Contractual Relations 2016Text-Based Network Industries and Endogenous Product Differentiation 2010Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis 2005Power Imbalance, Mutual Dependence, and Constraint Absorption: A Closer Look at Resource Dependence Theory 2003Are Selling, General, and Administrative Costs “Sticky”?2012Product Market Threats, Payouts, and Financial Flexibility

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