Social Networks and Corporate Performance: The Moderating Role of Technical Uncertainty

Article excerpt

Between the rise of globalization and the development of information technology, the complexity of the operating environment in industry increases daily, perhaps making intangible assets the key to competitive advantage (Norton and Kaplan, 1996, 2003). Social networks, one such significant intangible asset, have gained prominence in recent years (e.g., Gulati et al., 2000; Koka and Prescott, 2002). The analyses of social networks are tied to multiple levels: individual, firm, and regional. This paper focuses primarily on social networks at the firm level. That is, firm network is being referenced. In terms of firms, social networks refer to a set of firms that are connected by a specific type of social relationship. Prior research has suggested that interfirm networks facilitate the transmission of information and the access to unique resources and thus can be thought of as an inimitable and non-substitutable asset (Gulati, 1999; Palmer et al., 1995). A number of studies have also suggested that social networks provide several benefits for firms, such as learning benefits (e.g., Powell et al., 1996), coordination benefits (e.g., Coleman, 1990; Uzzi, 1997), performance benefits (e.g., Maurer and Ebers, 2006), and increasing legitimacy (e.g., Higgins and Gulati, 2003). Therefore, whether and how social networks improve corporate performance has become a dominant theme in strategy and organizational research (see, e.g., Carpenter and Westphal, 2001; Goerzen, 2007; Zollo et al., 2002).

However, extant research examining the performance effects of social networks reports mixed results. Some research has found a positive impact: Carpenter and Westphal (2001) found that social networks formed by members of the boards of directors helped to obtain useful corporate strategy information and increase corporate performance; Inkpen and Tsang (2005) found that social networks not only promoted knowledge transfer among members of a network but also between union firms, thus promoting performance and innovation; Sorenson et al. (2009) found a positive impact of network ties in family businesses on corporate performance. Other research has found a negative impact: Goerzen and Beamish (2005) found that international companies with more diverse networks had, on average, lower economic performance than international companies with less diverse networks; Goerzen (2007) pointed out that social networks had a negative impact on corporate performance when there was a greater overlap of organizational partners. These conflicting findings reveal two possibilities. One is that the relationship between social networks and corporate performance might be nonlinear. Another is that the value of social networks might depend on a number of moderators and contingencies (e.g., Gulati and Higgins, 2003; Gupta et al., 2011; Hansen et al., 2001; Rowley et al., 2000).

To clarify the relationship between social networks and corporate performance, this research extends previous research about the performance impacts of social networks (e.g., Goerzen, 2007; Goerzen and Beamish, 2005) by exploring whether the relationship between social networks and corporate performance is a non-linear inverted U-shape curve. The authors particularly focus on examining network centrality, which signifies a firm's network position and determines the set of resources and information the firm could mobilize through social networks (Davis, 1991). When an organization has a higher network centrality, it can receive and transfer a greater amount of information, and therefore has an advantage in controlling information transfer and can benefit more from social networks. Despite that several other network properties have been studied in prior research, such as network structure and network composition, a firm's network position plays an important role in securing timely access to novel information and benefiting from social networks. Obtaining access to a greater number of more diverse information through a central position also comes at a price. …


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