The Impact of Corporate Social Network on Innovation: A Mediation Analysis of Agency Costs and Financial Constraints

Abstract

This paper examines the impacts of corporate social network on innovation activities (both R&D inputs and patent outputs) and explores the potential influence path of social networks driving corporate innovation. Using Chinese share markets’ listed companies in the period from 2009 to 2016 as the sample, we establish a new type of social network based on the connections of the core management team (including directors, supervisors and executives) and find that a corporate social network based on the core management team has a positive causal effect on enhancing R&D investments and patent performance. Empirical results are robust after controlling for endogeneity and the causal relationship between social networks and corporate innovation is robustly monotonic. We perform a mediation analysis following the bootstrapping procedures, and find that alleviating financial constraints plays a mediating role in the process of a social network of this new type improving corporate innovation, while mitigating agency conflicts does not. Our conclusions demonstrate that, in the promotion of corporate innovation by the corporate social network, financial constraints have a more profound impact than agency costs.