The Impact of Long-Term Client Relationships on the Performance of Business Service Firms

Abstract

In this article, the author empirically examines the impact of long-term client relationships on the performance of business service firms. On the basis of the information contained in the Compustat and Compact Disclosure sets of databases, he finds that, over the long run, relationship-oriented business service firms achieve higher returns on their investments than do transaction-oriented firms. Importantly, the findings suggest that, unlike relationship-oriented suppliers of business goods such as component parts, long-term client relationships do not improve the productivity of relationship-oriented service firms. However, such relationships help business service firms to resist price pressures from their customers and add more value to their services over time.