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Knowledge Spillover in Corporate Financing Networks: Embeddedness and the Firm's Debt Performance

Brian Uzzi and James J. Gillespie
Strategic Management Journal
Vol. 23, No. 7 (Jul., 2002), pp. 595-618
Published by: Wiley
Stable URL: http://www.jstor.org/stable/3094445
Page Count: 24
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Knowledge Spillover in Corporate Financing Networks: Embeddedness and the Firm's Debt Performance
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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.

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