The Innovation Performance: The Effects of The Quantity and Quality of Both Direct and Indirect Network Ties

This research examines the effects of the quantity and quality of network ties on firms' innovativeness. It addresses the theoretical puzzle why firms receiving the same amount of resources from their direct and indirect network ties may exhibit heterogeneous innovative outcomes. Using licensing and patenting data of firms operating within the semiconductor industry, we find that both the quantity and quality of direct ties have a positive and significant impact on firms' innovativeness, but the quality of ties has a more significant impact than the number of ties. Moreover, the findings indicate the effect of the quality of ties is more significant at the level of direct ties than at the indirect ties. These results have important managerial implications. It suggests that managers should critically evaluate the capabilities of their direct partners, as that influence the quality of resources they accrue from their network of partners and have a significant bearing on their innovative performance.