Socially Connected Supply Chains
40 Pages Posted: 2 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 formal business relationships in the product market. With a unique and comprehensive dataset incorporating social network and supply chain interactions, we find that social connections, measured by either the presence of (or the number of) manager-to-manager personal connections, predict supply chain network formation and sustainment between firms. The predictive relationship is stronger for connections between executives as well as long-standing connections, and also applies to second-degree indirect connections to a lesser extent. An identification strategy with exogenous deaths shocks to companies’ social network is adopted to establish causality. Two mechanisms, the 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 asset and risky investment, and more importantly, benefit the focal firm in the long run, albeit a relatively lower short-run performance due to the expansions.
Keywords: Social Network, Supply Chains, Trustworthiness, Information Channel
JEL Classification: D82, D86, G30, G34, L14
Suggested Citation: Suggested Citation