Structural holes and R&D investment: evidence from top management teams of China’s A-share listed firms

ABSTRACT

The extant literature recognize that social relations and networks strengthen corporate innovation, but the contribution of the top management teams and the channel of social status and network location in corporate innovation is not well addressed. By constructing firm-to-firm matrices by top management team members’ experience with the data set of China’s A-share listed companies, we find that higher status and better network location with more structural holes foster corporate R&D investment and the number of invention patents, although the effect on total innovation outputs is not significant. What’s more, the external and internal tunnels are further explored by testing the effect of information booming and absorptive willingness. It is confirmed that the positive impact of structural holes on corporate innovation is magnified with the penetration of high-speed rail and internet as well as high compensation incentive. This research supports the structural holes advantage theory, expands the research of the social networks, and provides reference for corporate innovation practice by taking advantages of structural holes from the top management teams.

KEYWORDS:

• Structural holes
• R&D investment
• top management teams
• information booming
• absorptive willingness

Author’s contribution

We declare all the authors make contributions in this article, while Huiting Lin is the Corresponding Author. All authors read and approved the final manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

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Notes

¹ As is reported by iFinD (http://www.51ifind.com), the proportion of SOEs among Chinese A-share listed companies is up to 29.9%, and the proportion of aggregated total market value of SOEs is 46.6% on the 28th of January in 2021.

² The research period is set from 2007 since the Chinese Accounting Standard for Business Enterprises (CAS 2007) puts forward new requirements on the disclosure of R&D expenditure, and the R&D data in financial reports are more complete from 2007 onwards.

³ The direct relationship between two enterprises means the two enterprises can connect with each other one-by-one inside of by other firms, while the indirect relationship means one enterprise needs to get touch with another enterprise only through a third one, and the path distance is over 1.

⁴ p_ij is a ratio index that is measured by the proportion of time and energy input by enterprise i on the projects from enterprise j. For example, p_ij equals 1/n when the number of firms which has direct investment relationship with enterprise i is n.

⁵ q represents other firms, excluding enterprise j, among enterprise i’s direct relation network. So when enterprise q has direct relationship with enterprise j, the value of C_ij will be larger, which means the higher level of scarcity of enterprise i’s structural hole resource.

⁶ The opening shock of high-speed rail is commonly introduced as a quasi-experiment in extant researches. But in fact, the endogeneity still exists since the time dummy variable in the DID model is a noise. The effect of opening of high-speed rail can be replaced by alternative explanations like the development of economics and the implementation of other policies. Hence a more precise identification of the effect of high-speed rail, the volume of passenger traffic is introduced so as to represent the frequency of corporate information exchange with outside.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China (Grant No. 71702117 and 71802142) and the Humanities and Social Science Fund of Ministry of Education of China (Grant No. 17 YJC630156).