Customer Concentration and Public Disclosure: Evidence from Management Earnings and Sales Forecasts

This study examines the effect of customer-base concentration on corporate public disclosure policy. We argue that large customers have lower costs of accessing the supplier firm’s private information, which reduces their demand for the supplier’s public information, suggesting a negative association between customer concentration and the amount of public disclosure. Consistent with this argument, we find that the likelihood and frequency of management earnings forecasts decrease with customer concentration among firms with major corporate customers. This effect is stronger when the supplier and customers are engaged in more relationship-specific investments and when it is less costly for customers to find another supplier. We find a similar negative association between the concentration of prospective customers and the likelihood and frequency of management earnings forecasts.