Abstract
Drawing on resource dependence and social network theories, we explore the relationship between social networks, financial constraints, and corporate innovation. We employ a two-way fixed-effect panel model based on Chinese A-share listed corporations from 2008 to 2020. We find that financial constraints have a negative relationship with corporate innovation, social networks promote corporate innovation, and financial constraints mediate this relationship. In addition, our findings suggest that social networks have a significantly positive effect on exploratory innovation and a negative effect on exploitative innovation; financial constraints mediate these relationships. Moreover, our findings are heterogeneous for different regions (west, central, and east) and corporate sizes (large and small). Therefore, our findings improve the understanding of the impact of social networks and funds on corporate innovation, shed light on the approach to enhancing corporate innovation, and further expand resource dependence and social network theories.
Similar content being viewed by others
Availability of data and material
All data and materials support our published claims and comply with field standards.
References
Acharya, V., & Xu, Z. (2017). Financial dependence and innovation: The case of public versus private firms. Journal of Financial Economics, 124(2), 223–243. https://doi.org/10.1016/j.jfineco.2016.02.010
Álvarez, R., & Crespi, G. A. (2015). Heterogeneous effects of financial constraints on innovation: Evidence from Chile. Science & Public Policy, 42(5), 711–724. https://doi.org/10.1093/scipol/scu091
Au, K., Peng, M. W., & Wang, D. (2000). Interlocking directorates, firm strategies, and performance in Hong Kong Towards a research agenda. Asia Pacific Journal of Management, 1(17), 28–47.
Baron, R. M., & Kenny, D. A. (1986). The moderator-mediator variable distinction in social psychological-research: conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173–1182. https://doi.org/10.1037/0022-3514.51.6.1173
Bibi, S., Khan, A., Hayat, H., Panniello, U., Alam, M., & Farid, T. (2022). Do hotel employees really care for corporate social responsibility (CSR): A happiness approach to employee innovativeness. Current Issues in Tourism, 25(4), 541–558. https://doi.org/10.1080/13683500.2021.1889482
Bibi, S., Khan, A., Qian, H., Garavelli, A. C., Natalicchio, A., & Capolupo, P. (2020). Innovative Climate, a Determinant of Competitiveness and Business Performance in Chinese Law Firms: The Role of Firm Size and Age. Sustainability, 12(12), 4948. https://doi.org/10.3390/su12124948
Bolton, P., Schernkman, J., & Xiong, W. (2006). Executive Compensation and Short-Termist Behaviour in Speculative Markets. The Review of Economic Studies, 73(3), 577–610. https://doi.org/10.1111/j.1467-937x.2006.00388.x
Bravo, F., & Reguera-Alvarado, N. (2017). The effect of board of directors on R&D intensity: Board tenure and multiple directorships. R & D Management, 5(47), 701–714.
Burt, R. S., & Burzynska, K. (2017). Chinese Entrepreneurs, Social Networks, andGuanxi. Management and Organization Review, 13(2), 221–260. https://doi.org/10.1017/mor.2017.6
Cao, G., & Zhang, J. (2021). Guanxi, overconfidence and corporate fraud in China. Chinese Management Studies. https://doi.org/10.1108/CMS-04-2020-0166. ahead-of-print.
Chai, S., Chen, Y., Huang, B., Ye, D., Li, P. P., Xie, E., Lew, S. C., Sato, Y., & Lui, S. (2019). Social networks and informal financial inclusion in China. Asia Pacific Journal of Management, 36(2), 529–563. https://doi.org/10.1007/s10490-017-9557-5
Chen, H., Ho, M. H., & Hsu, W. (2013). Does board social capital influence chief executive officers’ investment decisions in research and development? R & D Management, 43(4), 381–393. https://doi.org/10.1111/radm.12025
Chuluun, T., Prevost, A., & Upadhyay, A. (2017). Firm network structure and innovation. Journal of Corporate Finance, 44, 193–214. https://doi.org/10.1016/j.jcorpfin.2017.03.009
Cohen, L., Frazzini, A., & Malloy, C. (2008). The Small World of Investing: Board Connections and Mutual Fund Returns. Journal of Political Economy, 116(5), 951–979. https://doi.org/10.1086/592415
Czarnitzki, D., & Hottenrott, H. (2011). R&D investment and financing constraints of small and medium-sized firms. Small Business Economics, 36(1), 65–83. https://doi.org/10.1007/s11187-009-9189-3
Dahl, M. S., & Pedersen, C. (2005). Social networks in the R&D process: The case of the wireless communication industry around Aalborg, Denmark. Journal of Engineering and Technology Management, 22(1–2), 75–92. https://doi.org/10.1016/j.jengtecman.2004.11.001
Deng, P., & Yang, M. (2015). Cross-border mergers and acquisitions by emerging market firms: A comparative investigation. International Business Review, 24(1), 157–172. https://doi.org/10.1016/j.ibusrev.2014.07.005
Doh, S., & Acs, Z. J. (2010). Innovation and Social Capital: A Cross-Country Investigation. Industry and Innovation, 17(3), 241–262. https://doi.org/10.1080/13662711003790569
Drees, J. M., & Heugens, P. P. (2013). Synthesizing and Extending Resource Dependence Theory a Meta-Analysis. Journal of Management, 39, 1666–1698.
Efthyvoulou, G., & Vahter, P. (2016). Financial Constraints, Innovation Performance and Sectoral Disaggregation. The Manchester School, 84(2), 125–158. https://doi.org/10.1111/manc.12089
El-Khatib, R., Fogel, K., & Jandik, T. (2015). CEO network centrality and merger performance. Journal of Financial Economics, 116(2), 349–382. https://doi.org/10.1016/j.jfineco.2015.01.001
Elking, I., Paraskevas, J. P., Grimm, C., Corsi, T., & Steven, A. (2017). Financial Dependence, Lean Inventory Strategy, and Firm Performance. The Journal of Supply Chain Management, 53(2), 22–38. https://doi.org/10.1111/jscm.12136
Engelberg, J., Gao, P., & Parsons, C. A. (2012). Friends with money. Journal of Financial Economics, 103(1), 169–188. https://doi.org/10.1016/j.jfineco.2011.08.003
Faleye, O., Kovacs, T., & Venkateswaran, A. (2014). Do Better-Connected CEOs Innovate More? Journal of Financial and Quantitative Analysis, 49(5–6), 1201–1225. https://doi.org/10.1017/S0022109014000714
Fang, Y., Francis, B., & Hasan, I. (2018). Differences make a difference: Diversity in social learning and value creation. Journal of Corporate Finance (amsterdam, Netherlands), 48, 474–491. https://doi.org/10.1016/j.jcorpfin.2017.11.015
Fee, C. E., Hadlock, C. J., & Pierce, J. R. (2009). Investment, Financing Constraints, and Internal Capital Markets: Evidence from the Advertising Expenditures of Multinational Firms. Review of Financial Studies, 22(6), 2361–2392. https://doi.org/10.1093/rfs/hhn059
Ferreira, D., Manso, G., & Silva, A. C. (2013). Incentives to Innovate and the Decision to Go Public or Private. Review of Financial Studies, 27(1), 256–300. https://doi.org/10.1093/rfs/hhs070
Fombang, M. S., & Adjasi, C. K. (2018). Access to finance and firm innovation. Journal of Financial Economic Policy, 10(1), 73–94. https://doi.org/10.1108/JFEP-10-2016-0070
García-Quevedo, J., Segarra-Blasco, A., & Teruel, M. (2018). Financial constraints and the failure of innovation projects. Technological Forecasting & Social Change, 127, 127–140. https://doi.org/10.1016/j.techfore.2017.05.029
Giebel, M., & Kraft, K. (2019). External Financing Constraints and Firm Innovation. The Journal of Industrial Economics, 67(1), 91–126. https://doi.org/10.1111/joie.12197
Giraudo, E., Giudici, G., & Grilli, L. (2019). Entrepreneurship policy and the financing of young innovative companies: Evidence from the Italian Startup Act. Research Policy, 48(9), 103801. https://doi.org/10.1016/j.respol.2019.05.010
Guo, H., Xu, E., & Jacobs, M. (2014). Managerial political ties and firm performance during institutional transitions: An analysis of mediating mechanisms. Journal of Business Research, 67(2), 116–127. https://doi.org/10.1016/j.jbusres.2012.11.009
Hadlock, C. J., & Pierce, J. R. (2010). New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index. Review of Financial Studies, 23(5), 1909–1940. https://doi.org/10.1093/rfs/hhq009
He, Y., Xu, L., & McIver, R. P. (2019a). How does political connection affect firm financial distress and resolution in China? Applied Economics, 51(26), 2770–2792. https://doi.org/10.1080/00036846.2018.1558358
He, Y., Yu, W., Dai, Y., & Wang, Y. (2019b). Managers’ professional experience and enterprise innovation. Journal of Managing World, 35(11), 174–192.
Helmers, C., Patnam, M., & Rau, P. R. (2017). Do board interlocks increase innovation? Evidence from a corporate governance reform in India. Journal of Banking & Finance, 80, 51–70. https://doi.org/10.1016/j.jbankfin.2017.04.001
Hewitt-Dundas, N. (2006). Resource and Capability Constraints to Innovation in Small and Large Plants. Small Business Economics, 26(3), 257–277. https://doi.org/10.1007/s11187-005-2140-3
Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource Dependence Theory: A Review. Journal of Management, 35(6), 1404–1427. https://doi.org/10.1177/0149206309343469
Hongdao, Q., Bibi, S., Khan, A., Ardito, L., & Nurunnabi, M. (2019). Does What Goes Around Really Comes Around? The Mediating Effect of CSR on the Relationship between Transformational Leadership and Employee’s Job Performance in Law Firms. Sustainability, 11(12), 3366. https://doi.org/10.3390/su11123366
Hottenrott, H., & Richstein, R. (2020). Start-up subsidies: Does the policy instrument matter? Research Policy, 49(1), 103888. https://doi.org/10.1016/j.respol.2019.103888
Howell, A. (2016). Firm R&D, innovation and easing financial constraints in China: Does corporate tax reform matter? Research Policy, 45(10), 1996–2007. https://doi.org/10.1016/j.respol.2016.07.002
Javakhadze, D., Ferris, S. P., & French, D. W. (2016). Social capital, investments, and external financing. Journal of Corporate Finance (amsterdam, Netherlands), 37, 38–55. https://doi.org/10.1016/j.jcorpfin.2015.12.001
Joh, S. W., & Jung, J. (2018). When do firms benefit from affiliated outside directors? Evidence from Korea. Corporate Governance: An International Review, 26(6), 397–413. https://doi.org/10.1111/corg.12224
Khan, A., Bibi, S., Lyu, J., Garavelli, A. C., Pontrandolfo, P., & Perez Sanchez, M. D. A. (2020). Uncovering Innovativeness in Spanish Tourism Firms: The Role of Transformational Leadership, OCB, Firm Size, and Age. Sustainability, 12(10), 3989. https://doi.org/10.3390/su12103989
Khanna, V., Kim, E. H., & Lu, Y. (2015). CEO Connectedness and Corporate Fraud. The Journal of Finance, 70(3), 1203–1252. https://doi.org/10.1111/jofi.12243
Kuang, Y. F., & Lee, G. (2017). Corporate fraud and external social connectedness of independent directors. Journal of Corporate Finance, 45, 401–427. https://doi.org/10.1016/j.jcorpfin.2017.05.014
Lai, J., Chen, L., & Song, S. (2019). How outside directors’ human and social capital create value for corporate international investments. Journal of World Business, 54(2), 93–106. https://doi.org/10.1016/j.jwb.2018.11.006
Landry, R., Amara, N., & Lamari, M. (2002). Does social capital determine innovation? To what extent? Technological Forecasting & Social Change, 69(7), 681–701. https://doi.org/10.1016/s0040-1625(01)00170-6
Li, D. (2011). Financial Constraints, R&D Investment, and Stock Returns. Review of Financial studies, 24(9), 2974–3007. https://doi.org/10.1093/rfs/hhr043
Li, X., & Jin, Y. (2021). Do political connections improve corporate performance? Evidence from Chinese listed companies. Finance Research Letters, 41, 101871. https://doi.org/10.1016/j.frl.2020.101871
Li, K., Yue, H., & Zhao, L. (2009). Ownership, institutions, and capital structure: Evidence from China. Journal of Comparative Economics, 3(37), 471–490.
Liao, S., & Wu, C. (2010). System perspective of knowledge management, organizational learning, and organizational innovation. Expert Systems with Applications, 37(2), 1096–1103. https://doi.org/10.1016/j.eswa.2009.06.109
Lin, F., & Lin, Y. (2016). The effect of network relationship on the performance of SMEs. Journal of Business Research, 69(5), 1780–1784. https://doi.org/10.1016/j.jbusres.2015.10.055
Lin, Z. J., Liu, S., & Sun, F. (2017). The Impact of Financing Constraints and Agency Costs on Corporate R&D Investment: Evidence from China. International Review of Finance, 17(1), 3–42. https://doi.org/10.1111/irfi.12108
Lu, Z., Zhu, J., & Zhang, W. (2012). Bank discrimination, holding bank ownership, and economic consequences: Evidence from China. Journal of Banking & Finance, 36(2), 341–354. https://doi.org/10.1016/j.jbankfin.2011.07.012
Meroño-Cerdan, A. L., & López-Nicolas, C. (2013). Understanding the drivers of organizational innovations. The Service Industries Journal, 33(13–14), 1312–1325. https://doi.org/10.1080/02642069.2013.815736
Mina, A., Lahr, H., & Hughes, A. (2013). The demand and supply of external finance for innovative firms. Industrial and Corporate Change, 22(4), 869–901. https://doi.org/10.1093/icc/dtt020
Mirvis, P., Herrera, M. E. B., Googins, B., & Albareda, L. (2016). Corporate social innovation: How firms learn to innovate for the greater good. Journal of Business Research, 69(11), 5014–5021. https://doi.org/10.1016/j.jbusres.2016.04.073
Nanda, R., & Nicholas, T. (2014). Did bank distress stifle innovation during the Great Depression? Journal of Financial Economics, 114(2), 273–292. https://doi.org/10.1016/j.jfineco.2014.07.006
Nguyen, B., Do, H., & Le, C. (2021). How much state ownership do hybrid firms need for better performance? Small Business Economics. https://doi.org/10.1007/s11187-021-00556-8
Pang, C., & Wang, Y. (2020). Stock pledge, risk of losing control and corporate innovation. Journal of Corporate Finance, 60, 101534. https://doi.org/10.1016/j.jcorpfin.2019.101534
Pangarkar, N., & Wu, J. (2013). Alliance formation, partner diversity, and performance of Singapore startups. Asia Pacific Journal of Management, 30(3), 791–807. https://doi.org/10.1007/s10490-012-9305-9
Peng, Z., Sha, H., Lan, H., & Chen, X. (2019). Cross-shareholding and financing constraints of private firms: Based on the perspective of social network. Physica a: Statistical Mechanics and Its Applications, 520, 381–389. https://doi.org/10.1016/j.physa.2019.01.049
Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. Harper & Row.
Pham, T., & Talavera, O. (2018). Discrimination, Social Capital, and Financial Constraints: The Case of Viet Nam. World Development, 102, 228–242. https://doi.org/10.1016/j.worlddev.2017.10.005
Phelps, C., Heidl, R., & Wadhwa, A. (2012). Knowledge, Networks, and Knowledge Networks: A Review and Research Agenda. Journal of Management, 38(4), 1115–1166. https://doi.org/10.1177/0149206311432640
Qi, T., Li, J., Xie, W., & Ding, H. (2020). Alumni Networks and Investment Strategy: Evidence from Chinese Mutual Funds. Emerging Markets Finance & Trade, 56(11), 2639–2655. https://doi.org/10.1080/1540496X.2019.1643321
Schuchter, A., & Levi, M. (2016). The Fraud Triangle revisited. Security Journal, 29(2), 107–121. https://doi.org/10.1057/sj.2013.1
Schuchter, A., & Levi, M. (2019). Beyond the fraud triangle: Swiss and Austrian elite fraudsters. Accounting Forum, 39(3), 176–187. https://doi.org/10.1016/j.accfor.2014.12.001
Shaw, T. S., Cordeiro, J. J., & Saravanan, P. (2016). Director network resources and firm performance: Evidence from Indian corporate governance reforms. Asian Business & Management, 15(3), 165–200. https://doi.org/10.1057/s41291-016-0003-1
Sierra, J. (2019). How financial systems and firm strategy impact the choice of innovation funding. European Journal of Innovation Management, 23(2), 251–272. https://doi.org/10.1108/EJIM-07-2018-0147
Su, Z., Xiao, Z., & Yu, L. (2019). Do political connections enhance or impede corporate innovation? International Review of Economics & Finance, 63, 94–110. https://doi.org/10.1016/j.iref.2018.08.012
Sun, S. L., & Lee, R. P. (2013). Enhancing Innovation Through International Joint Venture Portfolios: From the Emerging Firm Perspective. Journal of international marketing (East Lansing, Mich.), 21(3), 1–21. https://doi.org/10.1509/jim.13.0016
Sun, B., Liu, S., Jiang, J., Ge, C., & Zhou, H. (2019). Corporate financing constraints and innovation performance: From the perspective of human capital social network. Chinese Journal of Management Science, 27(04), 179–189.
Tao, Q., Li, H., Wu, Q., Zhang, T., & Zhu, Y. (2019). The dark side of board network centrality: Evidence from merger performance. Journal of Business Research, 104, 215–232. https://doi.org/10.1016/j.jbusres.2019.07.019
Toivanen, O., & Hyytinen, A. (2005). Do financial constraints hold back innovation and growth?: Evidence on the role of public policy. Research Policy, 34(9), 1385–1403.
Tsai, L., Zhang, R., & Zhao, C. (2019). Political connections, network centrality and firm innovation. Finance Research Letters, 28, 180–184. https://doi.org/10.1016/j.frl.2018.04.016
Whited, T. M., & Wu, G. (2006). Financial Constraints Risk. Review of Financial Studies, 19(2), 531–559. https://doi.org/10.1093/rfs/hhj012
Xie, H., Zou, J., & Mu, L. (2021). Multiple networks and enterprise innovation based on the perspective of middle managers. Knowledge Management Research & Practice, 19(3), 387–395. https://doi.org/10.1080/14778238.2020.1774432
Yan, Y., & Guan, J. (2018). Social capital, exploitative and exploratory innovations: The mediating roles of ego-network dynamics. Technological Forecasting and Social Change, 126, 244–258. https://doi.org/10.1016/j.techfore.2017.09.004
Yuan, R., & Wen, W. (2018). Managerial foreign experience and corporate innovation. Journal of Corporate Finance, 48, 752–770. https://doi.org/10.1016/j.jcorpfin.2017.12.015
Zhang, Z., & Luo, T. (2020). Network capital, exploitative and exploratory innovations-from the perspective of network dynamics. Technological Forecasting and Social Change. https://doi.org/10.1016/j.techfore.2020.119910
Zhang, D., & Zheng, W. (2020). Does Financial Constraint Impede the Innovative Investment? Micro Evidence from China. Emerging Markets Finance & Trade, 56(7), 1423–1446. https://doi.org/10.1080/1540496X.2018.1542594
Zheng, G., Wang, S., & Xu, Y. (2018). Monetary stimulation, bank relationship and innovation: Evidence from China. Journal of Banking & Finance, 89, 237–248. https://doi.org/10.1016/j.jbankfin.2018.02.010
Zona, F., Gomez-Mejia, L. R., & Withers, M. C. (2018). Board Interlocks and Firm Performance: Toward a Combined Agency-Resource Dependence Perspective. Journal of Management, 44(2), 589–618. https://doi.org/10.1177/0149206315579512
Funding
This research is supported by the Fundamental Research Funds for the Central Universities (Project NO. 2020CDJSK02PT04). This research is supported by the Natural Science Foundation of Chongqing (Project NO. cstc2020jcyj-msxmX0817).
Author information
Authors and Affiliations
Contributions
All authors contributed to the study conception and design. Material preparation, data collection and analysis were performed by CG, LQ. The first draft of the manuscript was written by GW and ZJ. All authors commented on previous versions of the manuscript. All authors read and approved the final manuscript.
Corresponding author
Ethics declarations
Conflict of interest
All authors declare no conflict of interest.
Ethical approval
This article has not been published and is not being considered for publication elsewhere. Results are presented clearly, honestly, and without fabrication, falsification or inappropriate data manipulation. We adhere to discipline-specific rules for acquiring, selecting and processing data.
Consent to participate
All authors agree to participate in the process of writing and publishing this article.
Consent for publication
All authors have approved the submission of the manuscript, and agree to publish this article.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Cao, G., Geng, W., Zhang, J. et al. Social network, financial constraint, and corporate innovation. Eurasian Bus Rev 13, 667–692 (2023). https://doi.org/10.1007/s40821-023-00245-4
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40821-023-00245-4