RIETI Report February 2019

Bankruptcy propagation in customer–supplier networks: An empirical analysis in Japan

Print

The complex networks formed through customer–supplier relationships between firms have the potential to propagate shocks across the economy. In this column, ARATA examines the propagation of bankruptcies through customer-supplier networks through an analysis of daily bankruptcy records over an almost 4-year period and the transaction records of over one million Japanese firms, determining their relationships and how likely it is that a bankruptcy in one firm will spread to other firms in its supply chain.

Contrary to the supposition that increased connectivity increases risks of propagation of negative effects, ARATA discovers that the mitigating forces of networks are dominant. Bankruptcy propagation is observed empirically, but only very infrequently and with very limited reach. This is because the increased connectivity between firms disperses bankruptcy shocks such that they immediately die out.

This month's featured article

Bankruptcy propagation in customer–supplier networks: An empirical analysis in Japan

ARATA YoshiyukiFellow, RIETI

One of the characteristic features of our modern economy is interdependence between firms (Lamy 2013). Firms purchase and sell goods simultaneously and these customer-supplier relationships generate a huge and complex network, through which individual shocks can propagate across the economy. For example, since transactions between firms are frequently performed on trade credit, the bankruptcy of a customer may worsen the financial conditions of its suppliers and in turn lead to another bankruptcy of its suppliers. In essence, the bankruptcy of a few firms may trigger a large-scale bankruptcy propagation involving many firms. If so, how large is bankruptcy propagation empirically observed in an economy? What is the risk of a large-scale bankruptcy propagation?

To read the full text
https://www.rieti.go.jp/en/columns/v01_0113.html

Recent articles on RIETI's website

"Raising Productivity: UK economic statistics review and EBPM"
By SENGA Tatsuro (Fellow, RIETI)
https://www.rieti.go.jp/en/columns/a01_0514.html

"Japan and U.S. Starting Trade Negotiations: Japan in a difficult position regarding cars and foreign exchange"
by ISHIKAWA Jota (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/ishikawa/07.html

"Challenges for New Governments in Latin America: The relationship with the Congress in Brazil will be a key"
by HAMAGUCHI Nobuaki (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/hamaguchi/05.html

"Future Design: A new policymaking system for future generations"
by KOBAYASHI Keiichiro (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/columns/s19_0011.html

"How Should We Measure the Development of Artificial Intelligence Technology?"
by IKEUCHI Kenta (Fellow, RIETI)
https://www.rieti.go.jp/en/columns/a01_0509.html

"What are the Risks for the Global Economy?"
by ITO Hiroyuki (Visiting Fellow, RIETI)
https://www.rieti.go.jp/en/special/policy-update/075.html

"Foreign Workers: Can They Be the Saviors of Japan?"
by KONDO Keisuke (Fellow, RIETI)
https://www.rieti.go.jp/en/columns/s19_0006.html

"Policy Objectives Set at the Beginning of the Heisei Era and Reality"
by MORIKAWA Masayuki (Vice President, RIETI)
https://www.rieti.go.jp/en/columns/s19_0001.html

"Latent Risks in the Strong Economy—Poor Resistance in Response to Crises from Overseas"
by MIYAGAWA Tsutomu (Faculty Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/miyagawa/13.html

"Ordinary people have been hurt by globalism"
by Willem THORBECKE (Senior Fellow, RIETI)
https://www.rieti.go.jp/en/papers/contribution/willem-thorbecke/06.html

Event Information

For a complete list of past and upcoming event information.

Symposiums

Workshops

BBL Seminars

Fellow titles and links in the text are as of the date of publication.

For questions or comments regarding RIETI Report, please contact the editor.

＠
*If the "Send by mailer" button does not work, please copy the address into your email "send to" field and connect the prefix and the suffix of the address with an "@", sending it normally.

RIETI Report is published bi-weekly.