Network Analysis for Economics and Finance: An Application to Firm Ownership

Abstract

AbstractIn this chapter, we introduce network analysis as an approach to model data in economics and finance. First, we review the most recent empirical applications using network analysis in economics and finance. Second, we introduce the main network metrics that are useful to describe the overall network structure and characterize the position of a specific node in the network. Third, we model information on firm ownership as a network: firms are the nodes while ownership relationships are the linkages. Data are retrieved from Orbis including information of millions of firms and their shareholders at worldwide level. We describe the necessary steps to construct the highly complex international ownership network. We then analyze its structure and compute the main metrics. We find that it forms a giant component with a significant number of nodes connected to each other. Network statistics show that a limited number of shareholders control many firms, revealing a significant concentration of power. Finally, we show how these measures computed at different levels of granularity (i.e., sector of activity) can provide useful policy insights.