Industry centrality: Weak ties, industry attributes, and managerial contracting

Rasha Ashraf, Nishant Dass and Vikram Nanda

Financial Management, 2022, vol. 51, issue 2, 663-699

Abstract: Centrality in the network of interindustry trade relationships provides novel insights into an industry's economic attributes and managerial incentive contracts prevalent in the industry. More “central” industries trade with a large number of industries, implying numerous but relatively weaker interindustry ties. Weakness of interindustry ties suggests that relationship‐specific investment (RSI) will be less important and output will be relatively more commoditized in central industries. As predicted, central industry firms are less innovative, face greater competition, and have lower idiosyncratic risk. Further, CEOs in central industries receive lower pay and weaker incentives. Tournament incentives are also weaker in more central industries.

Date: 2022
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