This paper examines the effect of outside directors from major customers on suppliers' risk arising from customer concentration. Using a sample of US suppliers over the 2001–2016 period, we find that a positive relationship between customer concentration and suppliers' risk is weakened when customers' representatives sit on the suppliers' board as outside directors. We further show that the presence of customer-affiliated outside directors at suppliers is positively related to these firms' aggressive financial policies of taking higher leverage, lower working capital, and lower cash reserves. Our results suggest that customers' board membership at suppliers helps alleviate the customer concentration risk by strengthening the supplier–customer relationship and reducing their information asymmetry. 

JEL classifications: G30; G32; G34; M40; M41

Keywords: Customer concentration; Firm risk; Interlocked board; Outside directors; Relationship-specific investments; Information asymmetry​