Are Major Customers Friends or Masters? Evidence from Customer Fraud Revelations

Shantanu Banerjee; Sudipto Dasgupta; RUI SHI

doi:10.1093/rcfs/cfaf028

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Are Major Customers Friends or Masters? Evidence from Customer Fraud Revelations

Shantanu Banerjee¹; Sudipto Dasgupta²; RUI SHI¹

¹ The University of Liverpool Management School , · ² Chinese University of Hong Kong

The Review of Corporate Finance Studies 2026

Abstract Downstream customer firms’ bargaining power can lead to suboptimal diversification in upstream suppliers’ innovation when customers cannot commit to a long-term relationship. After the revelation of financial fraud by a major customer, suppliers surprisingly outperform a control group in terms of sales growth, Tobin’s q, and survival likelihood over a 10-year period. Our results suggest that, before a fraud revelation, supplier managers’ short decision horizons and aversion to short-term risk enable influential customers to demand relation-specific innovation, leading to suboptimal diversification. When customer importance weakens, suppliers engage in riskier and novel innovation, thereby stimulating sales growth. (JEL G14, G3, L14, L24)

DOI: 10.1093/rcfs/cfaf028
Language: en
Export: BibTeX
Sources: openalex crossref