Supplier concentration and corporate acquisitions: a risk-mitigation perspective

Purpose This paper aims to test whether supplier concentration (SC), dependence on a few upstream vendors, pushes firms to integrate backwards through M&A and whether such deals are pursued chiefly to curb supply-chain risk, not to chase short-term profits. Design/methodology/approach Combining hand-collected supplier disclosures with M&A records for all Chinese A-share firms from 2001 to 2024, the authors obtain 17,794 observations for 1925 acquirers with 6758 completed vertical integration deals. SC equals the purchase share of the three largest vendors; acquisitiveness is measured by the annual count and total value (log) of supplier-targeted deals. Fixed-effects regressions, event-study cumulative abnormal returns, long-run buy-and-hold abnormal returns (BHARs), post-deal changes in dependence and structural equation modeling mediation analyses (cash, relationship-specific R&D) constitute the empirical toolkit. Findings A one-standard-deviation increase in SC raises the likelihood of a vertical acquisition by 11% and increases deal value by 44%. Announcement returns of 1.9–2.7% and BHARs up to 17% indicate sustained value creation. Three years after completion, the major supplier’s purchase share falls by 8% and ROA improves by roughly 9%. The effect is channeled through the acquirer’s cash-richness, while the acquirer’s more relationship-specific investment dampens the impact. Originality/value The study introduces SC as a first-order determinant of takeover activity, offering fresh support for transaction-cost and resource-dependence theories. It shows that arm’s-length vertical acquisitions effectively hedge against upstream shocks, informing managers’ boundary decisions and policymakers’ efforts to bolster supply-chain resilience.

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Publication Details

Journal
Accounting Research Journal
Published
2026-02-09
DOI
https://doi.org/10.1108/arj-07-2025-0257
Primary Topic
Supply Chain Resilience and Risk Management
Type
article
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article

Supplier concentration and corporate acquisitions: a risk-mitigation perspective

Wen Bo Li, Kai Wu, Obaid Ur Rehman
Accounting Research Journal
Supply Chain Resilience and Risk Management
article

Supplier concentration and corporate acquisitions: a risk-mitigation perspective

Wen Bo Li, Kai Wu, Obaid Ur Rehman
article en

Abstract

Purpose This paper aims to test whether supplier concentration (SC), dependence on a few upstream vendors, pushes firms to integrate backwards through M&A and whether such deals are pursued chiefly to curb supply-chain risk, not to chase short-term profits. Design/methodology/approach Combining hand-collected supplier disclosures with M&A records for all Chinese A-share firms from 2001 to 2024, the authors obtain 17,794 observations for 1925 acquirers with 6758 completed vertical integration deals. SC equals the purchase share of the three largest vendors; acquisitiveness is measured by the annual count and total value (log) of supplier-targeted deals. Fixed-effects regressions, event-study cumulative abnormal returns, long-run buy-and-hold abnormal returns (BHARs), post-deal changes in dependence and structural equation modeling mediation analyses (cash, relationship-specific R&D) constitute the empirical toolkit. Findings A one-standard-deviation increase in SC raises the likelihood of a vertical acquisition by 11% and increases deal value by 44%. Announcement returns of 1.9–2.7% and BHARs up to 17% indicate sustained value creation. Three years after completion, the major supplier’s purchase share falls by 8% and ROA improves by roughly 9%. The effect is channeled through the acquirer’s cash-richness, while the acquirer’s more relationship-specific investment dampens the impact. Originality/value The study introduces SC as a first-order determinant of takeover activity, offering fresh support for transaction-cost and resource-dependence theories. It shows that arm’s-length vertical acquisitions effectively hedge against upstream shocks, informing managers’ boundary decisions and policymakers’ efforts to bolster supply-chain resilience.

Accounting Research JournalVol. 39(2)
King Fahd University of Petroleum and Minerals (SA), Central University of Finance and Economics (CN), Lanzhou University of Finance and Economics (CN)
Openalex Percentile: Top 63%
Supply Chain Resilience and Risk Management
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Supplier concentration and corporate acquisitions: a risk-mitigation perspective — Wen Bo Li, Kai Wu, et al. · Accounting Research Journal (2026) | TGRS Research Map | TGRS