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Companies do not operate in a vacuum. As companies move towards anincreasingly specialized production function and their reach is becoming trulyglobal, their aptitude in managing and shaping their inter-organizationalnetwork is a determining factor in measuring their health. Current models ofcompany financial health often lack variables explaining theinter-organizational network, and as such, assume that (1) all networks are thesame and (2) the performance of partners do not impact companies. This paperaims to be a first step in the direction of removing these assumptions.Specifically, the impact is illustrated by examining the effects of customerand supplier concentrations and partners' credit risk on credit-default swap(CDS) spreads while controlling for credit risk and size. We rely uponsupply-chain data from Bloomberg that provides insight into companies'relationships. The empirical results show that a well diversified customernetwork lowers CDS spread, while having stable partners with low defaultprobabilities increase spreads. The latter result suggests that successfulcompanies do not focus on building a stable eco-system around themselves, butinstead focus on their own profit maximization at the cost of the financialhealth of their suppliers' and customers'. At a more general level, the resultsindicate the importance of considering the inter-organizational networks, andhighlight the value of including network variables in credit risk models.

Credit risk and companies' inter-organizational networks: Assessing impact of suppliers and buyers on CDS spreads