Posts tagged ‘Links’

The added benefit of network data: Assessing impact of suppliers and buyers on CDS spreads

Inter-organizational networkNetworks has the potential to increase the explanatory power of models. The content of this post, and accompanying paper, quantifies the size of this effect for predicting the financial health of companies. It is my hope that it can help drive more research into networks and enable more organizations to develop better models and understand interdependencies to a greater extent.

Companies do not operate in a vacuum. As companies move towards an increasingly specialized production function and their reach is becoming truly global, their aptitude in managing and shaping their inter-organizational network is a determining factor in measuring their health. Current models of company financial health often lack variables explaining the inter-organizational network, and as such, assume that (1) all networks are the same and (2) the performance of partners do not impact companies. This paper aims to be a first step in the direction of removing these assumptions. Specifically, the impact is illustrated by examining the effects of customer and supplier concentrations and partners’ credit risk on credit-default swap (CDS) spreads while controlling for credit risk and size. We rely upon supply-chain data from Bloomberg that provides insight into companies’ relationships. The empirical results show that a well diversified customer network lowers CDS spread, while having stable partners with low default probabilities increase spreads. The latter result suggests that successful companies do not focus on building a stable eco-system around themselves, but instead focus on their own profit maximization at the cost of the financial health of their suppliers’ and customers’. At a more general level, the results indicate the importance of considering the inter-organizational networks, and highlight the value of including network variables in credit risk models.

Continue Reading February 23, 2016 at 1:20 am Leave a comment

Article: Triadic closure in two-mode networks: Redefining the global and local clustering coefficients

A paper called “Triadic closure in two-mode networks: Redefining the global and local clustering coefficients” that I have authored will be published in the special issue of Social Networks on two-mode networks (2012).

As the vast majority of network measures are defined for one-mode networks, two-mode networks often have to be projected onto one-mode networks to be analyzed. A number of issues arise in this transformation process, especially when analyzing ties among nodes’ contacts. For example, the values attained by the global and local clustering coefficients on projected random two-mode networks deviate from the expected values in corresponding classical one-mode networks. Moreover, both the local clustering coefficient and constraint (structural holes) are inversely associated to nodes’ two-mode degree. To overcome these issues, this paper proposes redefinitions of the clustering coefficients for two-mode networks.

Continue Reading December 21, 2011 at 9:00 am 7 comments

Why Anchorage is not (that) important: Binary ties and Sample selection

A surprising finding when analysing airport networks is the importance of Anchorage airport in Alaska. In fact, it is the most central airport in the network when applying betweenness! I do not believe this finding is completely accurate due to two reasons: (1) there is a potential for measurement error when not including tie weights (i.e., assigning the same importance to the connection between London Heathrow and New York’s JFK as to the connection between Pack Creek Airport and Sitka Harbor Sea Plane Base in Alaska), and (2) relying on US data only leads to sample selection as the airport network is a global system. This post highlights how to use a weighted betweenness measure as well as the extent of the sample selection issue.

Continue Reading August 12, 2011 at 1:39 am 4 comments

Degree Centrality and Variation in Tie Weights

A central metric in network research is the number of ties each node has, degree. Degree has been generalised to weighted networks as the sum of tie weights (Barrat et al., 2004), and as a function of the number of ties and the sum of their weights (Opsahl et al., 2010). However, all these measures are insensitive to variation in the tie weights. As such, the two nodes in this diagram would always have the same degree score. This post showcases a new measure that uses a tuning parameter to control whether variation should be taken favourable or discount the degree centrality score of a focal node.

Continue Reading August 8, 2011 at 11:28 pm Leave a comment

Article: For the few not the many? The effects of affirmative action on presence, prominence, and social capital of women directors in Norway

A paper called “For the few not the many? The effects of affirmative action on presence, prominence, and social capital of women directors in Norway” that I have co-authored will be published in the Scandinavian Journal of Management. Governments have implemented various affirmative action policies to address vertical sex segregation in organizations. A gender representation law was introduced in Norway, which required public limited companies’ boards to have at least 40 percent representation of each sex by 2008. This law acted as an external shock, and this paper aims to explore its effects. In particular, it explores the gender bias, the emergence and sex of prominent directors, and directors’ social capital. We utilize data from May 2002 to August 2009 to analyze these aspects. The implied intention of the law was to create a larger pool of women acting as directors on boards, and the law has had the effect of increasing the representation of women on boards. However, it has also created a small elite of women directors who rank among the top on a number of proxies of influence.

Continue Reading September 30, 2010 at 4:02 pm Leave a comment

Article: Node centrality in weighted networks: Generalizing degree and shortest paths

Betweenness exampleA paper called “Node centrality in weighted networks: Generalizing degree and shortest paths” that I have co-authored will be published in Social Networks. Ties often have a strength naturally associated with them that differentiate them from each other. Tie strength has been operationalized as weights. A few network measures have been proposed for weighted networks, including three common measures of node centrality: degree, closeness, and betweenness. However, these generalizations have solely focused on tie weights, and not on the number of ties, which was the central component of the original measures. This paper proposes generalizations that combine both these aspects. We illustrate the benefits of this approach by applying one of them to Freeman’s EIES dataset.

Continue Reading April 21, 2010 at 10:37 am 95 comments

Closeness centrality in networks with disconnected components

Closeness in disconnected componentsA key node centrality measure in networks is closeness centrality (Freeman, 1978; Wasserman and Faust, 1994). It is defined as the inverse of farness, which in turn, is the sum of distances to all other nodes. As the distance between nodes in disconnected components of a network is infinite, this measure cannot be applied to networks with disconnected components (Opsahl et al., 2010; Wasserman and Faust, 1994). This post highlights a possible work-around, which allows the measure to be applied to these networks and at the same time maintain the original idea behind the measure.

Continue Reading March 20, 2010 at 1:03 pm 53 comments

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