Firm performance in networks: The interplay between firm centrality and corporate group size

Abstract

Corporate groups or networks, which are defined as collections of two or more legally independent firms connected through ownership ties, are prevalent in both developed and developing countries. The separate effects of firm centrality and corporate group size on firm performance have been largely discussed in the literature. However, the effect of their interaction remains underexplored. This paper attempts to fill the gap by introducing a new normalized measure of firm centrality independent of corporate group size. Our empirical analysis is based on a set of global corporate networks encompassing 17.8 million firms and the ownership ties between them extracted from the ORBIS database in 2014. We further investigate the firm performance in the corporate networks above by gathering financial information on 483,835 Italian firms from the AIDA database from 2014 to 2016. We find a positive relationship between firm centrality and firm performance, but the significance of the relationship decreases as corporate group size increases.