Firm aggregations and firm performance : evidence from network contracts

In Europe, the economic contraction starting in 2007-2008 has called for new economic policy tools. This paper analyses one of such policies, i.e. the network contract. Network Contracts are an innovative policy introduced in Italy with Law 9 April 2009, N. 33. This policy fosters the creation of firm aggregations with an ad hoc contract, without resorting on mergers. Network contracts are meant to increase economic efficiency for all firms involved in the contract. The paper employs a unique data base with panel data on companies' balance sheets for the period 2007-2012 along with data on the characteristics of their network contract. The effect of signing a network contract on the economic performance of the single firms and their aggregations is econometrically analyzed. Empirical results suggest in particular that (i.) firms signing a network contract tend to outperform firms that do not, and (ii.) network contracts whose members agree to commit more effort in the contract tend to outperform network contracts with less formally stated degrees of commitment.