Customer concentration and exploratory innovation: the mediating effect of perceived performance-reducing threats
Abstract
A great deal of research attention has been devoted to studying the effects of customer concentration on firm strategic acts. Scholars have also investigated the relationship between customer concentration and firm innovation, but concluded inconsistent findings of such relationship. Furthermore, the underlying mechanism remains unclear. To address these concerns, this study decouples exploratory innovation from firm innovation and introduce performance-reducing threats perceived by the executives as the mediator. Based on the observations of China high-tech listed firms from 2011 to 2018, empirical results show that customer concentration has a U-shaped relationship with exploratory innovation, via the mediating effect of performance-reducing threats perceived by the executives.
Keyword : customer concentration, exploratory innovation, performance-reducing threats, executives’ perceptions, high-tech companies, strategic acts, mediating effect
How to Cite
Zhao, W., Wang, C., Wan, L., Wang, Q., & Luo, B. (2021). Customer concentration and exploratory innovation: the mediating effect of perceived performance-reducing threats. Journal of Business Economics and Management, 22(4), 940-957. https://doi.org/10.3846/jbem.2021.14677
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Itzkowitz, J. (2013). Customers and cash: How relationships affect suppliers’ cash holdings. Journal of Corporate Finance, 19, 159–180. https://doi.org/10.1016/j.jcorpfin.2012.10.005
Jia, D., & Bian, S. (2019). Can the negative tone of prospectus predict post-ipo performance? Finance Forum, 10, 60–69 (in Chinese).
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–292. https://doi.org/10.1111/1468-0262.00439
Kelepouris, T., Miliotis, P., & Pramatari, K. (2008). The impact of replenishment parameters and information sharing on the bullwhip effect: A computational study. Computers & Operations Research, 35(11), 3657–3670. https://doi.org/10.1016/j.cor.2007.04.004
Kim, J., & Lee, W. (2019). How does board structure affect customer concentration? https://doi.org/10.2139/ssrn.3238644
Krolikowski, M., & Yuan, X. (2017). Friend or foe: Customer-supplier relationships and innovation. Journal of Business Research, 78, 53–68. https://doi.org/10.1016/j.jbusres.2017.04.023
Li, F. (2010). The information content of forward-looking statements in corporate filings – a naive bayesian machine learning approach. Journal of Accounting Research, 48(5), 1049–1102. https://doi.org/10.1111/j.1475-679X.2010.00382.x
Lind, J. T., & Mehlum, H. (2010). With or without u? The appropriate test for a u-shaped relationship. Oxford Bulletin of Economics and Statistics, 72(1), 109–118. https://doi.org/10.1111/j.1468-0084.2009.00569.x
Loughran, T., & Mcdonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks[J]. The Journal of Finance, 66(1), 35–65. https://doi.org/10.1111/j.1540-6261.2010.01625.x
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Luo, B., Luo, C., Ge, J., & Zhang, D. (2016). The moderating effects of slack on the relationship between ambidextrous strategy and performance: Evidence from high-tech firms in China. Journal of Business Economics and Management, 17(5), 734–748. https://doi.org/10.3846/16111699.2016.1193043
March, J. G. (1991). Exploration and exploitation in organizational learning. Organization Science, 2(1), 71–87. https://doi.org/10.1287/orsc.2.1.71
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Ocasio, W. C. (1995). The enactment of economic adversity – a reconciliation of theories of failureinduced change and threat-rigidity. Research in Organizational Behavior, 17, 287–331.
Osiyevskyy, O., & Dewald, J. (2015). Explorative versus exploitative business model change: The cognitive antecedents of firm-level responses to disruptive innovation. Strategic Entrepreneurship Journal, 9(1), 58–78. https://doi.org/10.1002/sej.1192
Pan, J., Yu, M., Liu, J., & Fan, R. (2020). Customer concentration and corporate innovation: Evidence from China. North American Journal of Economics and Finance, 54, 101284. https://doi.org/10.1016/j.najef.2020.101284
Patatoukas, P. N. (2012). Customer-base concentration: Implications for firm performance and capital markets. The Accounting Review, 87(2), 363–392. https://doi.org/10.2308/accr-10198
Peng, X., Wang, X., & Yan, L. (2019). How does customer concentration affect informal financing? International Review of Economics & Finance, 63, 152–162. https://doi.org/10.1016/j.iref.2018.08.022
Shen, H., Xia, N., & Zhang, J. (2018). Customer-based concentration and firm innovation. Asia-Pacific Journal of Financial Studies, 47(2), 248–279. https://doi.org/10.1111/ajfs.12210
Song, J., & Wang, X. (2019). Customer concentration and management earnings forecast. Economic and Political Studies, 7(4), 454–479. https://doi.org/10.1080/20954816.2019.1667600
Ugur, N. (2013). Measuring the validity of a text based indicator for exploration and exploitation activities. In Proceedings of the 8th European Conference on Innovation and Entrepreneurship, 2 (pp. 797– 806), 19–20 September 2013. Brussels, Belgium.
Uotila, J., Maula, M., Keil, T., & Zahra, S. A. (2009). Exploration, exploitation, and financial performance: Analysis of S&P 500 corporations. Strategic Management Journal, 30(2), 221–231. https://doi.org/10.1002/smj.738
Voss, G. B., Sirdeshmukh, D., & Voss, Z. G. (2008). The effects of slack resources and environmentalthreat on product exploration and exploitation. Academy of Management Journal, 51(1), 147–164. https://doi.org/10.5465/amj.2008.30767373
Wang, C., Luo, B., Liu, Y., & Wei, Z. (2016). The impact of executives’ perceptions of environmental threats and organizational slack on innovation strategies. Nankai Business Review International, 7(2), 216–230. https://doi.org/10.1108/NBRI-11-2015-0029
Wang, D., Su, Z., & Guo, H. (2019). Top management team conflict and exploratory innovation: The mediating impact of market orientation. Industrial Marketing Management, 82, 87–95. https://doi.org/10.1016/j.indmarman.2019.02.014
Wen, W., Ke, Y., & Liu, X. (2020). Customer concentration and corporate social responsibility performance: Evidence from China. Emerging Markets Review, 46, 100755. https://doi.org/10.1016/j.ememar.2020.100755
Wu, Z., & Peng, X. (2020). Exploratory versus exploitative innovation: SME performance implications of managerial ties and empowering leadership in China. Asian Journal of Technology Innovation, 2, 1–29. https://doi.org/10.1080/19761597.2020.1848439
Xie, D., & Lin, L. (2015). Do management tones help to forecast firms’ future performance: A textual analysis based on annual earnings communication conferences of listed companies in China. Accounting Research, 2(1), 20–27 (in Chinese).
Xie, X., & Gao, Y. (2018). Strategic networks and new product performance: The mediating role of ambidextrous innovation. Technology Analysis & Strategic Management, 30(7), 811–824. https://doi.org/10.1080/09537325.2017.1380790
Xu, L., Li, J., & Zeng, D. (2017). How does knowledge network affect a firm’s explorative innovation? The contingent role of R&D collaborations. Technology Analysis & Strategic Management, 29(9), 973–987. https://doi.org/10.1080/09537325.2016.1260105
Yu, S., & Chen, H. (2019). External knowledge, intraorganisational networks and exploratory innovation: An empirical examination. Innovation, 22(3), 250–269. https://doi.org/10.1080/14479338.2019.1642764
Zhou, B., Li, Y., Huang, S., Guo, S., & Xue, B. (2019). Customer concentration and corporate innovation: Effects of financing constraints and managers’ expectation of Chinese Listed Companies. Sustainability, 11(10), 2859. https://doi.org/10.3390/su11102859
Bang, N., Yu, X., Melewarc, T. C., & Guptad, S. (2016). Critical brand innovation factors (CBIF): Understanding innovation and market performance in the chinese high-tech service industry. Journal of Business Research, 69(7), 2471–2479. https://doi.org/10.1016/j.jbusres.2016.02.016
Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. https://doi.org/10.1037/0022-3514.51.6.1173
Bochkay, K., & Levine, C. B. (2019). Using MD&A to improve earnings forecasts. Journal of Accounting, Auditing & Finance, 34(3), 458–482. https://doi.org/10.1177/0148558X17722919
Campello, M., & Gao, J. (2017). Customer concentration and loan contract terms. Journal of Financial Economics, 123(1), 108–136. https://doi.org/10.1016/j.jfineco.2016.03.010
Chang, H., Hall, C. M., & Paz, M. (2017). Customer concentration, cost structure, and performance. AAA 2015 Management Accounting Section (MAS) Meeting. https://doi.org/10.2139/ssrn.2482777
Chattopadhyay, P., Glick, W. H., & Huber, G. P. (2001). Organizational actions in response to threats and opportunities. Academy of Management Journal, 44(5), 937–955. https://doi.org/10.5465/3069439
Chen, M., Yang, Z., Dou, W., & Wang, F. (2018). Flying or dying? Organizational change, customer participation, and innovation ambidexterity in emerging economies. Asia Pacific Journal of Management, 35(1), 97–119. https://doi.org/10.1007/s10490-017-9520-5
Daft, R. l., & Weick, K. E. (1984). Toward a model of organizations as interpretation systems. Academy of Management Review, 9(2), 284–295. https://doi.org/10.5465/amr.1984.4277657
Dhaliwal, D., Judd, J. S., Serfling, M., & Shaikh, S. (2016). Customer concentration risk and the cost of equity capital. Journal of Accounting and Economics, 61(1), 23–48. https://doi.org/10.1016/j.jacceco.2015.03.005
Faleye, O., Reis, E., & Venkateswaran, A. (2013). The determinants and effects of CEO-employee pay ratios. Journal of Banking & Finance, 37(8), 3258–3272. https://doi.org/10.1016/j.jbankfin.2013.03.003
Fernhaber, S. A., & Patel, P. C. (2012). How do young firms manage product portfolio complexity? The role of absorptive capacity and ambidexterity. Strategic Management Journal, 33(13), 1516–1539. https://doi.org/10.1002/smj.1994
Flannery, M. J., & Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469–506. https://doi.org/10.1016/j.jfineco.2005.03.004
Gatti, C., Volpe, L., & Vagnani, G. (2015). Interdependence among productive activities: Implications for exploration and exploitation. Journal of Business Research, 68(3), 711–722. https://doi.org/10.1016/j.jbusres.2014.07.011
Guo, R. (2018). Strategic decision-making logics, entrepreneurial capability and opportunity exploitation in high-tech new ventures. Journal of Business Economics and Management, 19(2), 235–252. https://doi.org/10.3846/jbem.2018.5201
Haans, R. F. J., Pieters, C., & He, Z.-L. (2016). Thinking about U: Theorizing and testing U- and inverted U-shaped relationships in strategy research. Strategic Management Journal, 37(7), 1177–1195. https://doi.org/10.1002/smj.2399
Hahn, T., Preuss, L., Pinkse, J., & Figge, F. (2014). Cognitive frames in corporate sustainability: Managerial sensemaking with paradoxical and business case frames. Academy of Management Review, 39(4), 463–487. https://doi.org/10.5465/amr.2012.0341
Hajek, P., Olej, V., & Myskova, R. (2014). Forecasting corporate financial performance using sentiment in annual reports for stakeholders’ decision-making. Technological and Economic Development of Economy, 20(4), 721–738. https://doi.org/10.3846/20294913.2014.979456
Huang, H. H., Lobo, G. J., Wang, C., & Xie, H. (2016). Customer concentration and corporate tax avoidance. Journal of Banking & Finance, 72, 184–200. https://doi.org/10.1016/j.jbankfin.2016.07.018
Irvine, P. J., Park, S. S., & Yıldızhan, Ç. (2016). Customer-base concentration, profitability, and the relationship life cycle. The Accounting Review, 91(3), 883–906. https://doi.org/10.2308/accr-51246
Itzkowitz, J. (2013). Customers and cash: How relationships affect suppliers’ cash holdings. Journal of Corporate Finance, 19, 159–180. https://doi.org/10.1016/j.jcorpfin.2012.10.005
Jia, D., & Bian, S. (2019). Can the negative tone of prospectus predict post-ipo performance? Finance Forum, 10, 60–69 (in Chinese).
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–292. https://doi.org/10.1111/1468-0262.00439
Kelepouris, T., Miliotis, P., & Pramatari, K. (2008). The impact of replenishment parameters and information sharing on the bullwhip effect: A computational study. Computers & Operations Research, 35(11), 3657–3670. https://doi.org/10.1016/j.cor.2007.04.004
Kim, J., & Lee, W. (2019). How does board structure affect customer concentration? https://doi.org/10.2139/ssrn.3238644
Krolikowski, M., & Yuan, X. (2017). Friend or foe: Customer-supplier relationships and innovation. Journal of Business Research, 78, 53–68. https://doi.org/10.1016/j.jbusres.2017.04.023
Li, F. (2010). The information content of forward-looking statements in corporate filings – a naive bayesian machine learning approach. Journal of Accounting Research, 48(5), 1049–1102. https://doi.org/10.1111/j.1475-679X.2010.00382.x
Lind, J. T., & Mehlum, H. (2010). With or without u? The appropriate test for a u-shaped relationship. Oxford Bulletin of Economics and Statistics, 72(1), 109–118. https://doi.org/10.1111/j.1468-0084.2009.00569.x
Loughran, T., & Mcdonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks[J]. The Journal of Finance, 66(1), 35–65. https://doi.org/10.1111/j.1540-6261.2010.01625.x
Lu, L., & Pohkam, W. (2019). Performance feedback, financial slack and the innovation behavior of firms. Asia Pacific Journal of Management, 36(4), 1079–1109. https://doi.org/10.1007/s10490-018-9634-4
Luo, B., Luo, C., Ge, J., & Zhang, D. (2016). The moderating effects of slack on the relationship between ambidextrous strategy and performance: Evidence from high-tech firms in China. Journal of Business Economics and Management, 17(5), 734–748. https://doi.org/10.3846/16111699.2016.1193043
March, J. G. (1991). Exploration and exploitation in organizational learning. Organization Science, 2(1), 71–87. https://doi.org/10.1287/orsc.2.1.71
Minakov, V. F., Lobanov, O. S., Makarchuk, T. A., Minakova, T. E., & Leonova, N. M. (2017). Dynamic management model of innovations generations. In 2017 XX IEEE International Conference on Soft Computing and Measurements (SCM), (pp. 849–852). St. Petersburg, Russia. IEEE. https://doi.org/10.1109/SCM.2017.7970743
Ocasio, W. C. (1995). The enactment of economic adversity – a reconciliation of theories of failureinduced change and threat-rigidity. Research in Organizational Behavior, 17, 287–331.
Osiyevskyy, O., & Dewald, J. (2015). Explorative versus exploitative business model change: The cognitive antecedents of firm-level responses to disruptive innovation. Strategic Entrepreneurship Journal, 9(1), 58–78. https://doi.org/10.1002/sej.1192
Pan, J., Yu, M., Liu, J., & Fan, R. (2020). Customer concentration and corporate innovation: Evidence from China. North American Journal of Economics and Finance, 54, 101284. https://doi.org/10.1016/j.najef.2020.101284
Patatoukas, P. N. (2012). Customer-base concentration: Implications for firm performance and capital markets. The Accounting Review, 87(2), 363–392. https://doi.org/10.2308/accr-10198
Peng, X., Wang, X., & Yan, L. (2019). How does customer concentration affect informal financing? International Review of Economics & Finance, 63, 152–162. https://doi.org/10.1016/j.iref.2018.08.022
Shen, H., Xia, N., & Zhang, J. (2018). Customer-based concentration and firm innovation. Asia-Pacific Journal of Financial Studies, 47(2), 248–279. https://doi.org/10.1111/ajfs.12210
Song, J., & Wang, X. (2019). Customer concentration and management earnings forecast. Economic and Political Studies, 7(4), 454–479. https://doi.org/10.1080/20954816.2019.1667600
Ugur, N. (2013). Measuring the validity of a text based indicator for exploration and exploitation activities. In Proceedings of the 8th European Conference on Innovation and Entrepreneurship, 2 (pp. 797– 806), 19–20 September 2013. Brussels, Belgium.
Uotila, J., Maula, M., Keil, T., & Zahra, S. A. (2009). Exploration, exploitation, and financial performance: Analysis of S&P 500 corporations. Strategic Management Journal, 30(2), 221–231. https://doi.org/10.1002/smj.738
Voss, G. B., Sirdeshmukh, D., & Voss, Z. G. (2008). The effects of slack resources and environmentalthreat on product exploration and exploitation. Academy of Management Journal, 51(1), 147–164. https://doi.org/10.5465/amj.2008.30767373
Wang, C., Luo, B., Liu, Y., & Wei, Z. (2016). The impact of executives’ perceptions of environmental threats and organizational slack on innovation strategies. Nankai Business Review International, 7(2), 216–230. https://doi.org/10.1108/NBRI-11-2015-0029
Wang, D., Su, Z., & Guo, H. (2019). Top management team conflict and exploratory innovation: The mediating impact of market orientation. Industrial Marketing Management, 82, 87–95. https://doi.org/10.1016/j.indmarman.2019.02.014
Wen, W., Ke, Y., & Liu, X. (2020). Customer concentration and corporate social responsibility performance: Evidence from China. Emerging Markets Review, 46, 100755. https://doi.org/10.1016/j.ememar.2020.100755
Wu, Z., & Peng, X. (2020). Exploratory versus exploitative innovation: SME performance implications of managerial ties and empowering leadership in China. Asian Journal of Technology Innovation, 2, 1–29. https://doi.org/10.1080/19761597.2020.1848439
Xie, D., & Lin, L. (2015). Do management tones help to forecast firms’ future performance: A textual analysis based on annual earnings communication conferences of listed companies in China. Accounting Research, 2(1), 20–27 (in Chinese).
Xie, X., & Gao, Y. (2018). Strategic networks and new product performance: The mediating role of ambidextrous innovation. Technology Analysis & Strategic Management, 30(7), 811–824. https://doi.org/10.1080/09537325.2017.1380790
Xu, L., Li, J., & Zeng, D. (2017). How does knowledge network affect a firm’s explorative innovation? The contingent role of R&D collaborations. Technology Analysis & Strategic Management, 29(9), 973–987. https://doi.org/10.1080/09537325.2016.1260105
Yu, S., & Chen, H. (2019). External knowledge, intraorganisational networks and exploratory innovation: An empirical examination. Innovation, 22(3), 250–269. https://doi.org/10.1080/14479338.2019.1642764
Zhou, B., Li, Y., Huang, S., Guo, S., & Xue, B. (2019). Customer concentration and corporate innovation: Effects of financing constraints and managers’ expectation of Chinese Listed Companies. Sustainability, 11(10), 2859. https://doi.org/10.3390/su11102859