Innovation Effects and Origins of Ego-Network Stability: The Hidden Dimension of Social Capital

Abstract

Much research has shown that firms’ ego-network configurations, i.e., structural holes or network closure, help them achieve superior innovation outcomes. However, little is known about how overall ego-network stability affects innovation. In this two-part dissertation, I first argue that in the alliance network context the stability is detrimental for the focal firm’s innovation performance. Moreover, firms are affected differentially by the stability depending on whether they span structural holes and on whether their inventive activities are geographically concentrated. Spanning structural holes mitigates the negative effect of ego-network stability whereas the geographic concentration of firms’ inventive activities further worsens the negative relationship. Next, I develop propositions about the origins of firms’ ego-network stability. I limit my theorizing in this case to structural hole stability or the stability of open structures only, with special focus on the embeddedness of alliance brokerage structures in geographic and network community space. I argue that the stability of network structures increases with the geographic distance between member firms. In contrast, I hypothesize that member firms’ location in different network communities has a negative effect on the stability of networks. I empirically test my propositions regarding the (ego-network) stability-performance relationship using 198 biopharmaceutical firms headquartered in the U.S. over a 21-year period from 1985 to 2005. My estimation sample for testing the origins of structural hole stability comprises of 329 broker and 680 alter firms over 1985-2005, yielding 61,495 triad-year observations in the global pharmaceutical industry context. I find support for my ideas. I contribute theoretically by highlighting the importance of network stability, a salient but lost dimension of social capital, for the focal firm’s performance. My work has practical implications in terms of network rewiring and maintenance.