Informal Ties and the Effects on Innovation: Analysis on the Chinese Information Technology (IT) Firms

Both social network theory and resource-based view posit that school ties are valuable interpersonal network, channeling information, preferential treatment or reputation. While the views regard school ties positive, the effects may be changed if the network actors compete with each other. Thus, we test the relationship between school ties and firm innovation, and the moderating effect of industry competition and tech-relativeness. Our dataset is the Chinese IT firms listed in the Shenzhen and Shanghai Stock Exchange from 2012 to 2016. The results show that the school tie and firm innovation have a positive relationship and that both the industry competition and tech-relativeness weaken the relationship between interpersonal networks and innovation. Findings suggest that the Chinese IT firms benefit from alums for an information source in conducting innovation, however, the benefits decrease in presence of rivalry between the ties. Overall, we confirm the existence of social capital in China and its role in enhancing innovation performance.