Customer Concentration of Targets in Mergers and Acquisitions

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2018-08-30
Authors
Cheng, Mei
Jaggi, Jacob
Young, Spencer
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We study how customer base concentration at a target firm impacts the occurrence and structure of M&A deals. We hypothesize that customer concentration increases information asymmetry and adverse selection between bidders and targets, such that (1) firms with greater customer concentration are less likely to receive a bid and (2) bidders for targets with greater customer concentration share the risk by using more stock payment in their offer. Using data on customer concentration and M&A deals from 1985 to 2016, we find consistent evidence supporting our predictions. Our findings extend the literature by systematically documenting an important factor in M&A decisions and by quantifying the economic consequences of customer concentration.
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customer concentration, bid likelihood, bid payment method
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