Interfirm Networks: Systemic Risk and Market Returns

Abstract

This thesis will examine the interfirm network of the United States. In particular, this thesis looks at the systemic risk associated with the interfirm network. Additionally, the interfirm network’s relationship to stock market returns is explored. This thesis will be part of a growing literature on interfirm networks and methods for collecting and interpreting interfirm network data. I collect data from SEC filings and other publicly available sources to approximate the United States’ domestic interfirm network, along with other financial, geographi- cal, and sector data. I quantitatively and qualitatively explore the network structure, while acknowledging potential sources of bias within the data. The data is used to test interfirm network risk, using two distinct models of network collapse. The models are based on the existing literature on systemic risk in networks. A simple method for estimating the quantity of network connections is used to predict the size of relationships of unknown significance. Lastly, I examine how connections within the interfirm network relate to stock price. This includes both global centrality measures and local connections. I compare results to other studies, and clarify the results within the context of an extraordinary year (2020).