The Dynamics of Inter-firm Networks and Firm Growth

Author Name FUJII Daisuke (Fellow, RIETI) / SAITO Yukiko (Senior Fellow, RIETI) / SENGA Tatsuro (Fellow, RIETI)
Creation Date/NO. August 2017 17-E-110
Research Project Dynamics of Inter-organizational Network and Geography
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Recent empirical evidence has revealed that firm age is one of the key determinants for firm growth, while other literature points out the importance of customer-supplier networks for firm growth. This paper investigates how the inter-firm transaction network evolves over the firm lifecycle and its relationship with firm growth using large-scale firm network data in Japan. Old firms are large in size and well connected compared to young firms. In particular, older firms are connected to other older firms exhibiting positive assortativity of age. Younger firms tend to add and drop links more frequently, and the stability of a transaction link increases with its duration of active relationships, implying gradual learning of link-specific productivity over time. Moreover, firm's sales growth is positively related with the expansion of transaction partners in various measures, conditional on firm age. This suggests that the observed relationship between firm age and firm growth may be due to the lifecycle pattern of building inter-firm networks.