The combined impact of direct and indirect ties on innovation: The moderating role of similarity in alliance subtypes

Abstract Firms increasingly use networks of alliances to pursue innovation. The current innovation literature has offered insights into how direct ties (between a focal firm and its partners, forming direct alliances) and indirect ties (between a focal firm's partner and its partners' partners but not including the focal firm, forming indirect alliances) function as independent antecedents to corporate innovation. It is, however, unclear how direct ties and indirect ties work in combination to impact innovation in a focal firm. Moreover, because different subtypes of financial or marketing alliances may operate with distinct governance structures and offer heterogeneous or incoherent resources for exchange, similarity in financial or marketing alliance subtypes, defined as the degree of overlap in financial or marketing alliance subtypes between direct and indirect ties, may significantly influence the extent to which corporate innovation can benefit from these ties. This study aims to examine the combined impact of direct and indirect ties on a focal firm's innovation by considering the moderating role of similarity in financial or marketing alliance subtypes. The results obtained by analyzing a longitudinal dataset extracted from US firms operating in the biotechnological and pharmaceutical industries support our hypotheses. Direct ties and indirect ties in combination have a negative effect on innovation as measured by patents and this effect is less negative when similarity in financial alliance subtypes is greater but more negative when similarity in marketing alliance subtypes is greater. We extend the innovation and alliance network literatures by offering novel evidence that direct and indirect ties in combination may diminish a focal firm's innovation and that such a negative combined effect depends on similarity in financial or marketing alliance subtypes.