Centrality Of Firms Research Articles

The Impact of Supply Chain Network Centrality on Sustainable Mergers and Acquisitions: Evidence from China

Mergers and acquisitions (M&As) are key drivers for resource integration and the operational efficiency of enterprises. Companies that hold central positions within supply chains may leverage their strategic location to reduce information asymmetry, enhancing their ability to engage in sustainable activities. However, research on the role of supply chain network centrality in M&A decisions remains underexplored. This study aims to empirically examine whether and how centrality in supply chain networks enhances the likelihood and success of M&A activities, contributing to both theory and practice in corporate strategy. In particular, we construct a novel measure of firm centrality within the supply chain and utilize panel data from Chinese A-share listed companies spanning 2008 to 2021. Our findings reveal that the central position of supply chain networks promotes the probability and frequency of mergers and acquisitions. Mechanism analysis reveals that gaining information advantages and relieving financial constraints are two key channels through which the supply chain network promotes mergers and acquisitions. Furthermore, the effects are more pronounced for firms with non-state ownership, with closer proximity to customers or suppliers, with higher operational risk, and with growth and decline phases. A series of robustness tests support these results, including alternative measures, alternative estimating methods, and sub-sample tests. Moreover, central supply chain companies exhibit better long-term financial performance following mergers and acquisitions. This paper enriches our understanding of the roles of supply chain networks in firms’ mergers and acquisitions and holds important practical implications for companies seeking to achieve sustainable and long-term development.

Product network and origin of common equity factor risks

This paper extends the multisector asset pricing model based on production networks, achieving direct pricing of a firm’s equity assets at a more microscopic level within the product network. An Equilibrium-Aligned PageRank (EA-PR) centrality algorithm is proposed, and it is theoretically proven that EA-PR centrality can reflect the relative value of products and further derive the value of firms. A new equity asset pricing factor is constructed based on the EA-PR centrality of firms. The key findings can be summarized as follows: Firstly, the EA-PR centrality of firms shows a significant positive linear predictability for equity returns, and the returns associated with the EA-PR centrality factor cannot be fully explained by the Fama–French 6 (FF6) factors. Secondly, the EA-PR centrality factor demonstrates significant explanatory power for the FF6 factors and, to some extent, exhibits predictive ability for future returns of the FF6 factors. Thirdly, the product network model can effectively reflect the market competitiveness and growth potential of firms, and firms with high EA-PR centrality have stronger value capture capabilities, improving gross profit margin, cash flow, and investment growth in the future. Finally, this study empirically demonstrates the consistency between the product network model and the pricing theory of the q5 model, which incorporates the expected growth factor.

Firm Networks and Asset Returns

Abstract Changes in the propagation of shocks along firm networks are important to understanding aggregate and cross-sectional features of stock returns. When calibrated to match key characteristics of supplier–customer networks in the United States, a model in which firms are interlinked via enduring relationships generates long-run consumption risks, high and volatile risk premiums, and a small and stable risk-free rate. The model also matches cross-sectional patterns of portfolio returns sorted by firm centrality, a feature unaccounted for by standard asset pricing models. (JEL C67, E30, G12, L14)

Influence of Firm Centrality on Supply Chain Performance of Agrochemicals Production Firms in Kenya

Characteristically, the supply-chain managers attempt to optimize profitable operations in the manufacturing and distribution in the supply chain. Integrated supply chain optimization is the large-scale streamlining of the links in the supply chain in such a way as to ensure the optimal operation of the links and actors in the supply chain. However, integrated supply chain optimization has not been extensively studied for its effect on the performance of distribution companies as opposed to manufacturing companies. Therefore, the purpose of the study was to examine the influence of firm centrality on supply chain performance of agrochemical production firms in Kenya. The Embeddedness theory guided the study which was also grounded on a positivist philosophy. This study employed the descriptive survey design targeting 32 agrochemical production firms with the unit of observation consisting of 96 persons being one management, one procurement and one supply chain staff per firm. The study adopted the census method and used primary data collected using researcher designed questionnaire and interview schedule that were both pretested using the test-retest method for reliability and content and construct validity. Data was analyzed using descriptive and inferential statistics with descriptive statistics comprising frequencies, percentages, means and standard deviations while inferential statistics comprised Pearson’s correlation coefficient and multiple regressions. The findings revealed that Firm Centrality was a strong predictor of Supply Chain Performance of Agrochemicals production firms in Kenya.The study recommended that the agrochemical production firms need to build stronger firm centrality in the supply chain.

Effects of Firm Centrality on the Wellbeing of its Alliance Officers: A Multi-level Investigation

Effects of Firm Centrality on the Wellbeing of its Alliance Officers: A Multi-level Investigation

Corporate Social Responsibility Knowledge Transfer in Interfirm Networks

This study investigates the effects of the alliance network structural properties on corporate social responsibility (CSR) knowledge transfer in the interfirm network context. Alliances and partnerships allow firms to access valuable CSR knowledge. While most research investigating knowledge transfer focuses on the dyadic level, the current research investigates CSR knowledge transfer within the interfirm network context. By integrating data from multiple datasets, this study investigates how a firm centrality and brokerage in its interfirm network influence its acquisition of CSR knowledge. The findings of 298 firms show that firm betweenness centrality and network brokerage enhance CSR knowledge transfer from its alliance partners. To the contrary, the greater the number of alliance partners (i.e., degree centrality), the weaker is the firm's ability to acquire CSR knowledge.

Firm centrality and limited attention

This study examines whether investor attention towards stocks is related to firm centrality in the input-output network. Using a data set of firms’ principal customers, we investigate the effect of firm centrality on the stock return predictability across economically linked firms. We find that stock prices do not promptly incorporate news about principal customers, generating return predictability which diminishes with the customer firm centrality levels. We show that this result is driven by limited investor attention. The evidence reveals that customer firms occupying more central positions in the network receive more investor attention. The results remain strong even when we make use of size-adjusted centrality values, indicating that the centrality effect is not driven by firm size. We find that more central firms are associated with greater financial analyst coverage and greater institutional investor equity holdings. Moreover, our analyses explicate that the source of information has an important role in attracting investor attention.

Network Centrality and Managerial Market-Timing Ability

AbstractWe document that long-run excess returns following announcements of share buyback authorizations and insider purchases are a U-shaped function of firm centrality in the input–output trade-flow network. These results conform to a model of investors endowed with a large but finite capacity for analyzing firms. Additional links weaken insiders’ informational advantage in peripheral firms (simple firms whose cash flows depend on few economic links), provided investors’ capacity is large enough, but eventually amplify that advantage in central firms (firms with many links) as a result of investors’ limited capacity. These findings shed light on the sources of managerial market-timing ability.

News-induced Dynamic Networks for Market Signaling: Understanding Impact of News on Firm Equity Value

Firm relations, which inform competitive environments of firms, are critical to firm operations and are often factored into investor decisions. Previous studies and practices have considered relatively stable and long-term business relations as an indicator of firm market value. Public news often reports on business relations, especially dynamic and short-term opportunities and challenges involving different partners. Learning about firm relations from news is commonly done by human investors but has not been studied systematically in previous research, leading to a research opportunity in market signaling via dynamic firm relations. In this study, we propose a new approach to market signaling by leveraging text-mining methods to extract co-benefit/counter-benefit networks based on firms’ mutual or conflicting interests in business events. We find that the resulting networks in the long term are partially aligned with firm co-operation and competition relationships, confirming their semantic implications for investor perception and attention. Our empirical study further shows that dynamic networks formed in short time period (measured by firm centrality in networks) have significant impacts on firm equity value, after controlling for market activities and other information from news, such as volume, sentiment, and co-mentions. We show that dynamic networks can provide additional value in predicting firm equity value over stable networks. Moreover, the negative effects of counter-benefit networks emerge rapidly and persist longer than the positive effects of co-benefit networks. This study provides new insights into investor perception of news and suggests new research directions for financial text mining. Our research findings on market signaling via news-induced networks also have impact on financial practices, such as market analysis and automatic trading.

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

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.

Change in domestic network centrality, uncertainty, and the foreign divestment decisions of firms

We investigate the role of domestic interfirm networks for the foreign divestment decisions of firms. We argue that firms’ foreign operations risk being divested when a firm becomes more central in its domestic network. Positive changes in firm centrality at home facilitate access to information about new business opportunities, but they may also lead firms to consider reconfiguring their value chain activities and resources across locations. The resulting opportunity costs of maintaining foreign operations could subsequently lead to their divestment. Moreover, we argue that the positive association between an increase in firm centrality in the domestic network and foreign divestment is stronger under higher uncertainty, as pursuing new business opportunities at home becomes more appealing. We distinguish between firm-specific uncertainty and domestic market uncertainty. We test and get support for our hypotheses using foreign subsidiary data from U.S. firms in the ICT industry.

A relational perspective on pure project performance

PurposeThe understanding of leaders’ network centrality in social networks has been acknowledged as a major topic that can advance the social network field; most studies in this area have either taken firms as the subject by which the network centrality of firms was measured or/and have been conducted for the functional project context. Very little research has been done in the pure project context. This paper aims to revisit the centrality–performance link in the singular specialized project context.Design/methodology/approachThe proposed relationships using panel data on 48 movie directors who lead pure projects has been studied. Freeman’s (1979) and Wasserman and Faust’s (1994) procedures have been adopted to compute our three centrality measures and their effects have been examined on box-office and artistic performance. A random effect and a mixed-effects Poisson model have been fit to examine the significance of the centrality–performance relationship.FindingsThe findings provide empirical evidence to support three out of the six hypotheses. The findings suggested that degree and closeness centrality are positively related to commercial performance and betweenness centrality is negatively related to commercial performance. However, it was found that only the degree centrality is related to artistic performance.Originality/valueThis study has two features that distinguish it from prior studies that link centrality to performance. First, the focus is on centrality attached to the leaders instead of the centrality attached to functional project teams or firms, as previously investigated. Second, this study is the first attempt of its kind to analyse the proposed relationship for an Asian market.

The Influence of Country and Firm Networks on International Alliance Formation

We examine how a firm’s position in the network of industry ties and the position of its home country in the network of intergovernmental ties influence its make- or-ally decisions. We argue that firm centrality provides opportunities for collaboration while home country centrality reduces the value of collaboration. We also argue that the influence of firm and country centrality on a firm’s decision to collaborate varies with the magnitude of the resources required to undertake new product development. We find support for our predictions in the aircraft industry during the 1944-2000 period. We contribute to the network and international alliances literatures.

Alliance Networks in Emerging Economies: The Impact of Centrality on Stock Market Performance.

Resource-based theory suggests that firms form alliances for increased accessibility to resources. Although prior work has investigated alliance impacts on stock market performance in developed economies, the literature lacks an investigation from the emerging market enterprise (EME) perspective. This is the first paper which investigates how the economy of partner firms and alliance network centrality interact to affect the financial market performance of EME firms. Our findings suggest that partner firm centrality positively impacts abnormal stock market returns and that the highest returns are observed when highly central partners are from developed economies. We contribute to the literature by exploring these relationships and offering a more precise model of investor responses to alliance announcements in EME stock markets.

Firm network structure and innovation

This study examines how various dimensions of a firm's network affect innovation and pricing of innovation by market participants. We use board interlocks to build interfirm network and construct different network measures to capture firm centrality in the interfirm network, cohesion within firm network, and diversity, innovativeness, and propinquity of firm network. Our results show that these different characteristics of network connectedness affect firm innovation input and output, particularly for firms in relatively intangible industries. These results are robust to the use of an instrumental variables approach as well as a natural experiment of state-level changes in R&D tax credits. We also find that innovation has a positive (negative) marginal effect on corporate bond yield spreads when firms have lower (higher) connectedness, suggesting that the market perceives innovative activities by more connected firms as less uncertain. Yield spread changes around patent filings further support this finding.

Centrality in the global network of corporate control

Corporations across the world are highly interconnected in a large global network of corporate control. This paper investigates the global board interlock network, covering 400,000 firms linked through 1,700,000 edges representing shared directors between these firms. The main focus is on the concept of centrality, which is used to investigate the embeddedness of firms from a particular country within the global network. The study results in three contributions. First, to the best of our knowledge for the first time we can investigate the topology as well as the concept of centrality in corporate networks at a global scale, allowing for the largest cross-country comparison ever done in interlocking directorates literature. We demonstrate, amongst other things, extremely similar network topologies, yet large differences between countries when it comes to the relation between economic prominence indicators and firm centrality. Second, we introduce two new metrics that are specifically suitable for comparing the centrality ranking of a partition to that of the full network. Using the notion of centrality persistence we propose to measure the persistence of a partition's centrality ranking in the full network. In the board interlock network, it allows us to assess the extent to which the footprint of a national network is still present within the global network. Next, the measure of centrality ranking dominance tells us whether a partition (country) is more dominant at the top or the bottom of the centrality ranking of the full (global) network. Finally, comparing these two new measures of persistence and dominance between different countries allows us to classify these countries based the their embeddedness, measured using the relation between the centrality of a country's firms on the national and the global scale of the board interlock network.

Network Centrality and Managerial Market Timing Ability: Evidence from Open-Market Repurchase Announcements

The authors find a U-shaped relation between long-run excess returns after buyback authorization announcements and firm centrality in the Input-Output trade flow network.As centrality may be non-linearly related to information asymmetry between firm insiders and outside investors, these results provide direct support for the market timing hypothesis of buybacks: while high centrality can increase information asymmetry due to information processing costs, low centrality can increase it due to information availability differences.Strikingly, unlike all past findings of positive abnormal returns in the literature on repurchases, significantly negative post-buyback announcement long-run excess returns are observed for some mid-centrality firms.

Peer production, the commons, and the future of the firm

From free and open source software, through Wikipedia to video journalism, peer production plays a more significant role in the information production environment than was theoretically admissible by any economic model of motivation and organization that prevailed at the turn of the millennium. Its sustained success for a quarter of a century forces us to reevaluate three core assumptions of the standard models of innovation and production. First, it places intrinsic and social motivations, rather than material incentives, at the core of innovation, and hence growth. Second, it challenges the centrality of property, as opposed to the interaction of property and commons, to growth. And third, it questions the continued centrality of firms to the innovation process.

Global Private Capital: A Network Perspective

The global market of inter-banking syndicated loans is a vast network of obligations upon which lenders rely for longer-term financing, and, in turn, provide to the real economy to finance projects. This network is explicitly modeled from 1998 to 2013 such that firms are nodes and loan facilities are edges in network terminology. Various measures of network topology are calculated, inclusive of temporal firm centrality, network density, transitivity, modularity, and community structure. Like many complex real-life networks, the global inter-lender network displays small world properties that insulate the network from adverse shocks overall. However, specific firms are shown to be systemically important at varying times; the removal of a systemically important firm fractures the network into dissolute communities, potentially disrupting the flow of capital to the economy. Both borrower and lender network centrality affect contract terms; overall, centrality lowers the cost of capital. Global network properties are also shown to inform micro contract terms.

Are world cities also world immigrant cities? An international, cross-city analysis of global centrality and immigration

Systematic research on world cities neglects immigration, despite its significance to world city formation. In this article, we test a foundational, but untested, premise of world cities research: that global centrality in the world urban system is associated with larger, more diverse immigrant populations. Using an international sample of cities, we conduct multivariate regressions of Benton-Short et al.’s Urban Immigrant Index on the Globalization and World City Network measure of advanced producer service firm centrality and two other measures of global urban centrality, controlling for competing explanations of international migration. Our findings reveal that cities that are more central to the network of advanced producer service firms have larger, more diverse immigrant populations than less-central cities. World cities are thus not only key sites for corporate control of the world economy, but they are also central in international flows of immigrant labor, as Sassen hypothesized nearly 30 years ago.