FINANCING NETWORKS AND KNOWLEDGE SPILLOVER.

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 arrangemen...