Whether and How Network Structure Shapes the Value of Firm Capabilities?

Abstract

This study examines how firm performance is driven jointly by individual firm-specific capabilities and the characteristics of networks in which firms are embedded. By using business groups in emerging economies as the organizational lens and adopting stochastic frontier estimation to measure firm capabilities, we find that the value of a firms capability is contingent upon the structure and the content of the intra-group network in which it is embedded. Specifically, we find that a dense intra-group network is likely to make innovative capability more valuable, although this effect varies across different types of network ties. While a dense network of intra-group buyer-supplier ties and equity ties enhances the value of innovative capability, a dense network of intra-group directorship ties does not influence the efficacy of a firms innovative capability.