The dynamic impact of inter-firm network agreements

This paper sheds new light on the dynamic effects of inter-firm network agreements on firm performance and investigates whether the specific combination of partner profiles triggers heterogeneous causal effects. Using a staggered difference-in-differences design, we find that participation in network agreements has a persistent impact on firms’ revenues, value added, and EBITDA that is amplified at least through the third year of collaboration. Our results show that micro firms benefit more from collaboration in network agreements, especially when they enter into relationships with larger partners. In addition, companies benefit more from network ties when most of their partners belong to the same travel-to-work area. Participating in a network agreement is a valuable solution for improving long-term revenues and operating margins. Our analysis shows that network agreements introduced into the Italian legal system in 2009 yield increasing benefits that become larger in the third year of cooperation and stabilize thereafter. Moreover, the interaction of partners’ characteristics affects the magnitude of the effects. Micro firms benefit more from formal networks, especially when they collaborate with larger partners. Moreover, network agreements are highly beneficial when most network members operate in the same area. The Italian policy on network agreements has proven to be a “best practice” under the Small Business Act. However, since it takes some time for the results of network agreements to reach their peak, institutional communication should be improved to raise the right expectations about their potential. From a management perspective, partner selection is a critical step, as a good match of partner characteristics can increase the value creation potential of formal networks.