Publications by Author: Qamar, Abid

Developing countries are marked by the prevalence of informal business networks. Many believe that these networks facilitate information sharing, trade, and contractual enforcement in weak institutional environments. However estimating network benefi…ts remains difficult due to data limitations, and identi…fication concerns. This paper uses ownership data on all (but the very small)private …firms in Pakistan to construct business networks involving 100,000 …firms. We link two …firms together if they have a director in common, and document the presence of a super-network in the economy. It comprises 5% of all …firms, is over a 100 times larger than the next largest network and obtains more than half of all bank credit. We then investigate the economic value that membership to the super-network brings by exploiting entry (exit) of …firms over time into the network. We identify the causal effect of network membership through a number of tests, including instrumenting network membership with “incidental” entry/exit of …firms. Network membership increases total external fi…nancing by 16.5%, reduces propensity to enter …financial distress by 9.7%, and better insures fi…rms against industry and location shocks. When forming new banking relationships, entering …firms are also more likely to select banks that already have existing relationships with adjoining …firms. We also …find that consistent with theories of strategic network development, benefi…ts of memberships are stronger when …firms connect through more powerful network nodes.

This paper provides a detailed description of the shape and financial importance networks amongst the universe of firms in an emerging economy where a network link is defined as board interlocks i.e. two firms share a common director. We do so by making use of a novel dataset from Pakistan that includes information on all the 140,000 firms borrowing from formal financial markets over a four year period. We find that a significant fraction of firms, upto one-third, have board interlocks with other firms. More interestingly, while firm networks typically range from networks of 2 to 100 firms, there exists a single very large network—the "super-network"—that comprises of almost 10,000 firms and is more than a hundred times the size of the second largest network. This super-network plays a disproportionately important role in financial markets: Although comprising 7% of firms, over 55% of all formal lending goes to firms in this super-network. Moreover, super-network firms have access to a greater number of lenders, default less and appear to be insured against adverse shocks in the economy. The super-network is robust to different definitions of firm linkages and over time. Moreover, a closer examination reveals that there are no important nodes (directors or firms) in the super-network and that is a very robust and diffuse network—eliminating important nodes (either singly or in clusters) does little to disrupt the network. This suggests that in addition to what one normally thinks of as business groups—a closely coordinated group of firms—more loosely yet very stably knit firm networks may also play an important role in emerging economies.