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Major Customers and Corporate Payout Flexibility

Soules College of Business, University of Texas at Tyler, 3900 University Blvd, Tyler, TX 75799, USA

College of Business and Economics, California State University, Los Angeles, 5151 State University Dr., Los Angeles, CA 90032, USA

E-mail Address: bli39@calstatela.edu

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Thanh Ngo

Department of Finance, College of Business, East Carolina University, 3127 Bate Building, Greenville, NC 27858, USA

E-mail Address: ngot@ecu.edu

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, and

Hongxia Wang

https://orcid.org/0000-0001-7475-1905

Department of Finance and Economics, Coastal Carolina University, 100 Chanticleer Dr E, Conway, SC 29528, USA

E-mail Address: hwang3@coastal.edu

Corresponding author.

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https://doi.org/10.1142/S2010139222500021Cited by:1 (Source: Crossref)

Abstract

Using a sample of 17,453 firm-year observations from 1993 to 2017, we find that firms with major customers maintain higher levels of payout flexibility. The positive impact of major customers on payout flexibility is contingent upon cash flow risk, stronger in firms with financial distress, higher cash flow volatility, lower customer switching costs, and greater R&D intensity. The results suggest that major customer-dependent firms tend to pursue more flexible payout policies to maintain or improve their financial flexibility. The results are robust to alternative measures of major customers, the inclusion of additional control variables, and various endogeneity tests.

Keywords:

JEL: G30, G32, G35

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