Dissortative From the Outside, Assortative From the Inside: Social Structure and Behavior in the Industrial Trade Network

TL;DR

This study investigates the social structure and behavior of an industrial trade network, revealing that firms with similar credit ratings tend to trade with each other despite the network's overall dissortative pattern, and introduces a method to infer missing data.

Contribution

It uncovers the internal assortative behavior based on credit ratings within a dissortative trade network and proposes a new approach to reconstruct incomplete network data using information exposure.

Findings

Firms with similar credit ratings tend to trade with each other.

A robust relationship exists between information exposure and credit rating.

The methodology aids in reconstructing networks with missing data.

Abstract

It is generally accepted that neighboring nodes in financial networks are negatively assorted with respect to the correlation between their degrees. This feature would play an important 'damping' role in the market during downturns (periods of distress) since this connectivity pattern between firms lowers the chances of auto-amplifying (the propagation of) distress. In this paper we explore a trade-network of industrial firms where the nodes are suppliers or buyers, and the links are those invoices that the suppliers send out to their buyers and then go on to present to their bank for discounting. The network was collected by a large Italian bank in 2007, from their intermediation of the sales on credit made by their clients. The network also shows dissortative behavior as seen in other studies on financial networks. However, when looking at the credit rating of the firms, an important attribute internal to each node, we find that firms that trade with one another share overwhelming similarity. We know that much data is missing from our data set. However, we can quantify the amount of missing data using information exposure, a variable that connects social structure and behavior. This variable is a ratio of the sales invoices that a supplier presents to their bank over their total sales. Results reveal a non-trivial and robust relationship between the information exposure and credit rating of a firm, indicating the influence of the neighbors on a firm's rating. This methodology provides a new insight into how to reconstruct a network suffering from incomplete information.