Customer Revenue Concentration and Financial Performance During Demand Volatility in Public Operating Firms

Abstract

Many firms depend on a limited set of large customers for a substantial share of annual revenue. Such dependence can provide predictable sales, lower selling costs, and deeper coordination with buyers, but it may also expose the firm to bargaining pressure, abrupt contract loss, and demand shocks transmitted through a narrow revenue base. This study examines the relationship between customer revenue concentration and financial performance using an unbalanced panel of 463 publicly traded U.S. operating firms from 2014 to 2024. Customer concentration is measured from annual major-customer disclosures and converted into a revenue-weighted concentration index. Financial performance is evaluated through operating return on assets, EBITDA margin, operating cash-flow stability, Tobin's Q, and revenue drawdown risk. The empirical design combines firm and year fixed effects, dynamic panel models, quantile regressions, event tests around major-customer losses, and instrumental-variable estimates based on industry-level buyer consolidation. The findings show that customer concentration is not uniformly harmful. Moderate concentration is associated with higher EBITDA margin and lower selling intensity when demand volatility is low. However, high concentration predicts weaker future profitability, larger revenue drawdowns, and lower valuation when end-market volatility is elevated. Major-customer loss events are followed by an average 8.7\% revenue decline and a 2.6 percentage-point reduction in EBITDA margin over the next fiscal year. The results indicate that concentrated revenue relationships can improve performance under stable demand, but they reduce resilience when customer demand becomes unstable or buyer replacement is difficult.