The Moderating Effects of Firm Capabilities and Governance Modes on the Network-Performance Relation

Abstract

This study examines how a firm’s external networks affect its performance and the factors that can potentially moderate the effect of networks on performance. Drawing on the resource dependence theory, this study argues that firm capabilities could negatively moderate the relation between networks and performance. Drawing on the transaction cost theory, on the other hand, this study asserts that the equity-based governance modes could positively moderate the relation between networks and performance. Using the panel data of public biopharmaceutical companies in Taiwan from 2002 to 2013, this study shows that a firm’s external networks positively affect its performance. Specifically, the firms achieve superior performance when they have richer external R&D or supply chain networks. In addition, this study shows that the weaker the firm’s capabilities, the stronger the positive effect of external networks on firm performance. For instance, the weaker the technical capabilities, the stronger the positive effect of external R&D networks on firm performance; the weaker the manufacturing and marketing capabilities, the stronger the positive effect of external supply chain networks on firm performance. Meanwhile, the study also indicates that the equity-based governance modes positively moderate the relation between networks and performance. That is, the more equity-based external networks, the better the firm performance.