Abstract
Building on social embeddedness theory, we examine how the competencies and resources of one corporate actor in a network are transferred to another actor that uses them to enhance transactions with a third actor-a strategic process we dub 'network transitivity.' Focusing on the properties of network transitivity in the context of small-firm corporate finance, we consider how embedded relations between a firm and its banks facilitate the firm's access to distinctive capabilities that enable it to strategically manage its trade-credit financing relationships. We apply theory and original case-study fieldwork to explore the types of resources and competencies available through bank-firm relationships and to derive hypotheses about how embedded bank-firm relationships affect the strategy of small-to medium-sized firms. Using a separate large-scale data set, we then test the generalizability of our hypotheses. Our qualitative analyses show that embedded bank-firm ties provide special governance arrangements that facilitate the firm's access to bank-centered informational and capital resources, which uniquely enhance the firm's ability to manage trade credit. Consistent with our arguments, our statistical analyses show that small-to medium-sized firms with embedded ties to their bankers were more likely to take lucrative early-payment trade discounts and avoid costly late-payment penalties than were similar firms that lacked embedded ties-suggesting that social embeddedness beneficially affects the financial performance of the firm.
Original language | English (US) |
---|---|
Pages (from-to) | 595-618 |
Number of pages | 24 |
Journal | Strategic Management Journal |
Volume | 23 |
Issue number | 7 |
DOIs | |
State | Published - Jul 2002 |
Keywords
- Alliances
- Embeddedness
- Entrepreneurship
- Finance
- Networks
ASJC Scopus subject areas
- Business and International Management
- Strategy and Management