Small-world networks, absorptive capacity and firm performance: evidence from the US venture capital industry

Abstract

A small-world network is a locally clustered network with short path lengths connecting different clusters. In this study, we explore contingent factors that affect the impact of small-world networks on firm performance, maintaining that benefits from such networks may depend on a firm’s absorptive capacity to recognise and assimilate external information and knowledge. Using a sample of US Venture Capital (VC) firms from 1995 to 2003, we find that small-world networks have a positive impact on firm performance and this positive impact varies with multiple determinants of a firm’s absorptive capacity. Implications of these findings for organisational learning and interfirm network studies are discussed.