Customer concentration and corporate tax avoidance

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

Research output: Contribution to journalArticlepeer-review

96 Scopus citations


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
StatePublished - Nov 1 2016

Bibliographical note

Funding Information:
We thank the editor Carol Alexander, two anonymous reviewers, and workshop participants at Beijing Jiaotong University, Fudan University, Shanghai University of Finance and Economics, Southwestern University of Finance and Economics, and Zhongnan University of Economics and Law for their very valuable comments. Chong Wang acknowledges financial support from Von Allmen School of Accountancy (Luckett Fellowship) and National Nature Science Foundation of China (funding # 71332008 ).

Publisher Copyright:
© 2016 Elsevier B.V.


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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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