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.