How Embedded Ties
Transfer Benefits Through Networks:
Banking Relationships and the Firm's Strategic Use of Trade Credit
Financing
Brian
Uzzi and James J. Gillespie
Abstract
The mechanisms by which social ties and networks help
actors transcend the limitations of their internal capabilities
is a key component of a theory of social organization. One key mechanism
concerns how the competencies and resources of one actor in a network
are transferred to another actor who uses them to enhance transactions
with a third actor. Building on a social embeddedness approach,
we argue that actors linked through embedded ties gain unique access
and governance benefits that promote the flow of resources and competencies
that invalue their separate third-party relationships. We examined
these arguments in the context of small firm financing networks,
with an eye to how the embeddedness of a firm's commercial banking
transactions in social attachments facilitates its acquisition of
competencies and resources that promote its strategic use of trade
credit financing. We relied upon theory and original fieldwork to
develop our arguments and then used quantitative methods and a separate
large-scale data set to examine the representativeness of our hypotheses.
We found that embedded bank-firm relationships provided three key
vital resources to firms: financial expertise, supplier referrals,
and term credit. These factors increased the amount of early payment
discounts and decreased the amount of late payment penalties on
trade credit taken by the firm.
Brian Uzzi, Kellogg
Graduate School of Management and Department of Sociology, Northwestern
University
James J. Gillespie, Kellogg Graduate School of Management,
Northwestern University
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