  Companies do not operate in a vacuum. As companies move towards an
increasingly specialized production function and their reach is becoming truly
global, their aptitude in managing and shaping their inter-organizational
network is a determining factor in measuring their health. Current models of
company financial health often lack variables explaining the
inter-organizational network, and as such, assume that (1) all networks are the
same and (2) the performance of partners do not impact companies. This paper
aims to be a first step in the direction of removing these assumptions.
Specifically, the impact is illustrated by examining the effects of customer
and supplier concentrations and partners' credit risk on credit-default swap
(CDS) spreads while controlling for credit risk and size. We rely upon
supply-chain data from Bloomberg that provides insight into companies'
relationships. The empirical results show that a well diversified customer
network lowers CDS spread, while having stable partners with low default
probabilities increase spreads. The latter result suggests that successful
companies do not focus on building a stable eco-system around themselves, but
instead focus on their own profit maximization at the cost of the financial
health of their suppliers' and customers'. At a more general level, the results
indicate the importance of considering the inter-organizational networks, and
highlight the value of including network variables in credit risk models.
