Small world of inter-firm network and firm's acquisition behaviour

Abstract

This study finds that the inter-firm network in India on account of director interlocks is a small world and the network has become more integrated since the introduction of corporate governance regulations in the country. Using a sample of National Stock Exchange listed firms in India the study finds a negative relation between average path length and probability of acquiring indicating the importance of faster reach of information among the firms within the network. The paper also finds a non-linear relation given by inverted U-shaped curve between firm level clustering and probability of acquiring. Initially, increase in clustering has a positive effect through the informational quality effect; however at higher levels the negative informational redundancy effect dominates leading to a curvilinear relation.