Smeal Research: Network Embeddedness Linked To Corporate Performance
Companies with distinctive product offerings or unique business processes are even more likely to reap economic gains when they're deeply embedded in a network with other similar niche players according to research co-authored by Ann Echols and Wenpin Tsai at Penn State's Smeal College of Business.
Smeal Research: Network Embeddedness Linked To Corporate Performance
UNIVERSITY PARK, PA (December 10, 2004)—Companies with distinctive product offerings or unique business processes are even more likely to reap economic gains when they’re deeply embedded in a network with other similar niche players according to research co-authored by Ann Echols and Wenpin Tsai at Penn State’s Smeal College of Business.
“Niche and Performance: The Moderating Role of Network Embeddedness” examines performance in the U.S. venture capital industry, a sector notable for its inter-firm working relationships. The article, which appears in the January issue of S trategic Management Journal , concludes that firm performance is not simply a function of product offerings or how a company conducts its business.
Echols and Tsai suggest that firms with deeply embedded network ties tend trust other firms in the network and share information with greater ease because of the familiarity that comes with recurring interactions. Thus, the more distinct a firm’s products or processes, the more it stands to benefit from the specific market information that emerges from tightly linked networks. Conversely, firms that belong to sparse networks in which few contacts are connected can never fully be aware of how other firms in the network are behaving.
“Our results suggest that a venture capital firm pursuing a more distinctive position needs to be involved in a highly embedded network to achieve high performance,” the authors conclude,” and that a venture capital firm pursuing a less distinctive position needs to be involved in a sparsely connected network to achieve high performance.”
To arrive at their findings, Echols and Tsai analyzed data from 80 independently managed U.S. venture capital firms over two separate two-year periods, tracking the number of successful IPOs supported by each VC firm. Successful IPOs were those with compounded daily returns exceeding the NASDAQ Composite Index over a 12-month period. The researchers also measured how extensively each VC firm’s product lines and operating procedures differed from competing firms, as well as the structure of each firm's IPO-co-investment network among other firms in the sample.
About the Authors
Ann Echols , assistant professor of management, has expertise in strategic management, entrepreneurship and venture capital, the strategic management of technology, and social networks. She is a member of the Academy of Management and the Strategic Management Society.
Wenpin Tsai , assistant professor of management, has expertise in strategic and international management and social network analysis. He is a member of the Academy of Management, Strategic Management Society, and the Academy of International Business, and is currently on the editorial board of the Academy of Management Journal.
REPORTERS & EDITORS: For more information, please contact Wyatt DuBois in the Smeal College of Business Media Relations Office at 814-863-3798 or wed112@psu.edu.
Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the Center for Digital Transformation, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.
