The Diffusion of Deal Innovations in Complex Contractual Networks
42 Pages Posted: 13 Jan 2023 Last revised: 7 Dec 2023
Date Written: December 27, 2022
Abstract
We introduce a new methodology for studying contractual evolution in complex markets. We situate the diffusion of a deal innovation within an advisory network and then provide methods for inferring a law firm's preference for adopting the innovation and for calculating each firm's proximity to prior adopters. This allows for granular analysis of firm-to-firm interactions as a diffusion mechanism.
To demonstrate, we study the top-up option’s diffusion in two-step tender offers from 1999 to 2013. Diffusion occurs readily when a firm is directly connected to a prior adopter of the option: directly connected firms are 274 percent more likely to adopt relative to unconnected firms. This correlation’s magnitude is akin to a firm changing its overall centrality within the advisory network from a median firm to a top-decile firm. These results demonstrate the importance of firm-to-firm information transfers to contractual evolution and underscore their study as a research priority.
Keywords: Contracts, Innovation, Evolution, Networks, Diffusion
JEL Classification: K12, K22
Suggested Citation: Suggested Citation