Segmentation of repeated partnerships and firm innovation : The importance of moderate relationships

Scholars have discussed the positive and negative effects of a firm's repeated partnerships, without reaching any conclusions. To identify where the conflicts come from, this study divided the egocentric partnership network of a focal firm into three layers: the first, second and third or more partnerships with several partners. The effects of each partnership network on innovation performance are examined in Korean bio-pharmaceutical firms using the two-step generalized method of moments estimates. As a result of the analysis, no evidence was found that the number of first partnerships affects firm innovation positively or negatively. However, the number of second partnerships was found to have a positive effect on performance due to the reduction of searching and managing costs for new partners, and the trust based relationships with partners. The number of third of more partnerships was found to have a negative effect due to various accumulated inefficiencies, such as focal firms’ dependency on partners and overlooking better alternatives. Understanding where these conflicts come from and the merits and demerits of repeated partnerships by understanding mechanisms or networks in the composition of a focal firm is an important empirical trial, which was also suggested as a future research theme.