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The role of central firms in the economic networks: Evidence from China

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  • Peng, Liansheng
  • Xu, Haoyu

Abstract

This paper investigates the economic influence and asset pricing implications of central firms within an inter-firm economic network constructed from shared analyst coverage. The findings reveal that the contemporaneous economic influence of high-centrality firms is approximately 1.5 to 18.0 times stronger than that of low-centrality firms. Moreover, high-centrality firms demonstrate positive predictive power for the future fundamentals of focal firms. The operating and investment activities of high-centrality firms exhibit stronger pro-cyclicality with the business cycle. In asset pricing, there is a positive relation between the network centrality measure and future stock returns. A long-short portfolio based on this measure yields monthly excess returns between 0.51% and 0.53%, which remain statistically significant after controlling for traditional risk factors. Additional tests support the interpretation that this premium compensates for systematic risk rather than reflecting mispricing.

Suggested Citation

  • Peng, Liansheng & Xu, Haoyu, 2026. "The role of central firms in the economic networks: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:pacfin:v:95:y:2026:i:c:s0927538x25003506
    DOI: 10.1016/j.pacfin.2025.103013
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