Customer concentration and corporate tax avoidance

Henry He Huang, Gerald J. Lobo, Chong Wang, Hong Xie

Research output: Journal article publicationJournal articleAcademic researchpeer-review

107 Citations (Scopus)


Firms with a concentrated corporate customer base need to hold more cash and have a stronger incentive to manage earnings upwards. Since tax planning can increase both cash flow and accounting earnings, firms with a concentrated customer base may be more likely to engage in tax avoidance. We find evidence of a positive association between the level of corporate customer concentration and the extent of tax avoidance. In addition, we find that the positive relation between corporate customer concentration and tax avoidance is more pronounced when a firm has a lower Market Share in its industry, enjoys less revenue diversification, and engages less in real earnings management. In contrast to corporate major customers, governmental major customers provide stable cash flow to suppliers, which is likely to alleviate supplier firms’ need for tax avoidance. We find that firms engage in lower levels of tax avoidance when they have a governmental major customer, and that this association is less pronounced under Democratic presidencies. Taken together, our findings indicate that a firm's customer concentration (i.e., corporate and governmental major customers) has a significant effect on the extent to which it avoids taxes.
Original languageEnglish
Pages (from-to)184-200
Number of pages17
JournalJournal of Banking and Finance
Publication statusPublished - 1 Nov 2016
Externally publishedYes


  • Corporate major customer
  • Customer concentration
  • Governmental major customer
  • Tax avoidance

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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