Socially Connected Supply Chains
38 Pages Posted: 2 Apr 2020 Last revised: 13 Apr 2020
Date Written: March 9, 2020
We examine how social connections built up via shared past working experience or non-business activities would help the formation of business relationships in the product market. With a unique and comprehensive dataset incorporating social networks and supply chain interactions of 4,081 listed U.S. firms, we find that social connections, measured by the manager-to-manager personal connections, predict supply chain network formation between firms. The predictive relationship is stronger for connections between executives and when the connection is a long-standing one, and also applies to second-degree indirect connections to a lesser extent. An identification strategy with exogenous death shocks to companies' social networks is adopted to establish causality. The mechanisms of trustworthiness and information channels are provided to interpret our results. At last, we provide strong evidence that firms with socially connected supply chains tend to expand their size in assets and risky investments, and more importantly, benefit the firm in the long run, albeit with a relatively lower short-run performance due to the expansions.
Keywords: Social Network, Supply Chains, Trust, Information Asymmetry
JEL Classification: D82, D86, G30, G34, L14
Suggested Citation: Suggested Citation