The effect of network participation on firm performance: a matched-pairs analysis

This article presents a matched-pairs analysis of the evolution of performance in firms thathave joined a network compared to that of firms not participating in a network. The literatureon networks and performance highlights a positive effect of networks on firm survival, growth,and general success. We tested this hypothesis with reference to a specific kind of agreementamong firms: the business-network contract, which was recently introduced into Italianregulation to develop the innovative and competitive capabilities of firms. Our resultsdemonstrate that the distribution and the median of performance indicators (e.g., sales growth,investments, productivity and financial position) are significantly different for network firms(compared to non-network firms) in the years following the agreement to participate in thenetwork. In particular, network firms demonstrate a better reaction to the difficult situationsthat have been experienced by a majority of Italian firms in the past several years of economicdownturn (e.g., decrease in sales, investments, productivity, and bank credit). Further researchshould test these results over a longer period and should consider the specific factors thatinfluence value creation and the distribution process within the networks, thus determiningdifferent performance effects at the firm level.