The Effect Of Customer Concentration On Cash Holdings

Cash holding decision is one of the most important financial decisions of the enterprise.The enterprise holding a certain amount of cash can not only meet daily business and trading activities,but it also can grasp the investment opportunities and prevent business risks.Cash is the most liquid asset and is also the least profitable asset,so the enterprise would bear a high opportunity cost of holding cash.As one of the important stakeholders of the enterprise,the customer is in the downstream of the supply chain,which can make a significant impact on the business activities and financial decisions.Especially in the increasingly fierce market competition environment,enterprises gradually begin to establish long-term relationship with upstream and downstream stakeholders.Therefore,when studying the cash holding level of the company,it is a great significance to pay attention to the major customers of the company.This paper selected the listed companies in China’s mainboard from 2007 to 2015 to make the empirical study of the correlation between customer concentration and corporate cash holdings.The empirical results show that the higher concentration of clients in listed companies,the higher the cash holdings;the main reason is that they need to hold enough cash maintain important customer groups.This paper also find that compared with non-state-owned enterprises and competitive industry companies,the positive correlation between the customer concentration of state-owned enterprises and monopolistic companies and their cash holdings is more significant.In this paper,I use a new vision--commitment motivation to explore t the impact of customer concentration on the cash holdings,which greatly enriched and expanded the research about customer concentration and corporate cash holdings.