Entrant Growth and the Network of Interfirm Mobility in the Foreign Exchange Industry

Abstract

In this paper we examine how personnel flows from incumbents to entrants affect entrant growth after a significant break in the rules governing competition in an industry. We argue that the time-varying network of personnel mobility between incumbents measures how technical knowledge and social resources are distributed among them. Consequently, where the prior employers of personnel are located in the incumbent network should determine the quality of knowledge these hires bring to an entrant and thus their contribution to the entrant's growth. We analyze the time-varying mobility network among incumbents in terms of its global structure and in terms of the local structure surrounding each entering firm. Our analysis shows that the global structure converges over time to a stable core and periphery pattern, which can be considered emergent in Bearman's (1997) definition. Entrant employees with job histories in the core significantly decrease the entrant's growth rate, whereas employees from the periphery increase growth. Also, entrants that occupy structural holes in the local network grow faster. The industry studied is foreign exchange trading among commercial banks from 1973 to 1993.