Customer Concentration, the Relationship Dynamic, and Bank Loan Terms : Evidence from China

Using a dataset on customer-supplier links, we study the relation between customer concentration, the dynamic of customer-supplier relationship, and bank loan terms in China. Empirically, we find that higher customer concentration significantly increases the amount of bank loans and the duration of maturity, whereas decreases the probability of bank loan security and has no significant effect on interest rate. Although the relationship dynamic has mitigation effects on all the four bank loan terms, the effects are insignificant on interest rate and security. Furthermore, these effects are intensified by the ownership of borrowing corporates. However, particularly, specific double-sorted portfolios in financing constraints and financing demands have significant impact only on the amount of bank loans and maturity. Our evidence shows that supplier firms with higher customer concentration will achieve favorable consequences with their creditors , which are alleviated by the customer-supplier relationship, revealing advantages of integration with customers along the supply chain and yet the disadvantages of relationship between the two parties over our sample period