Matchmaking Only for Equals? Cross-Network Influence of Status Distance on Triadic Closure

Abstract

This paper examines the cross-network influence on triadic closure in interorganizational networks. In particular, I theorize status distance as a crucial antecedent of triad closure: from the status distance between a pair of potential partners the common third party infers how sustainable their future cooperation is likely to be, which influence the common third party’s decision on whether to facilitate triadic closure. Using a longitudinal dataset of interlocking directorates and loan guarantees between Chinese publicly listed firms in the period 2007-2016, I find that triadic closure in the loan guarantee networks is less likely to happen when the indirectly connected parties have a large status distance in the interlocking directorate network. The weakening effect of status distance on triad closure is attenuated when the common third party has more alternative partners – because the common third party is less concerned about potential damages to its relationships with the two parties. I also find that pairs of status distance are less likely to have reciprocal guarantees, showing why common third parties use status distance to infer the likelihood of sustainable cooperation. If a common third party facilitated triadic closure in the first place, the focal pair is then more likely to follow the cooperative norm of reciprocity. This study instills a greater appreciation for the forward-looking orientation of common third parties in evaluating potential challenges in the cooperation between its partners, and thus its decision on whether to help with closing an open triad.