Too Few to Fail? Customer Concentration and Digital Innovation

ABSTRACT Research Question/Issue This study examines the impact of customer concentration on corporate digital innovation. It further investigates the underlying mechanisms and the conditions under which this effect varies. Research Findings/Insights Using a panel of Chinese listed firms from 2015 to 2022, we find that higher customer concentration is associated with greater digital innovation. Mechanism analyses reveal three reinforcing channels: enhanced information transparency, stronger supply‐chain management capabilities, and improved corporate governance, consistent with synergy effects. The positive association is more pronounced under higher economic policy uncertainty, greater customer switching costs, and stronger relational investments. Theoretical/Academic Implications This study extends the literature on customer concentration by identifying digital innovation as a distinct outcome shaped by buyer–supplier relationships. It further clarifies how relational dependence can be transformed into digital innovation through governance and coordination mechanisms, thereby advancing understanding of the supply chain's role in digital innovation. Practitioner/Policy Implications The findings suggest that firms can leverage concentrated customer relationships to support digital innovation by strengthening data sharing, coordination, and governance practices. For policymakers, improving customer disclosure systems and fostering collaborative supply‐chain environments may help promote firm‐level digital innovation and broader digital development.