This paper examines the effect of independent 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 independent directors. We further show that the presence of customer-affiliated independent directors at suppliers is positively related to these firms' aggressive financial policies. 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. 

Keywords: Customer concentration; Firm risk; Interlocked board; Independent directors; Relationship-specific investments; Information asymmetry
JEL classifications: G30; G32; G34