Social capital, absorptive capability, and firm innovation

The purpose of this study is to examine the relationship between social capital and firm innovation as well as the moderating effects of absorptive capability. In general, network-level technological diversity is utilized to measure a firm's social capital and in this case, an empirical investigation of 748 high-tech firms in Taiwan indicates that such diversity in a firm's social network has an inverted U-shaped relationship with the firms' innovation performance. In addition, we find that by increasing absorptive capability, it will systematically increase the slope and amplitude of the positive effects of diversity as well as maximize the overall value of network-level technological diversity for firm innovation performance. These results also suggest that an overabundance of network-level technological diversity can have a negative impact on firm innovation while a moderate level of such diversity can lead to high levels of innovation performance.

► We examine the relationship between social capital and firm innovation.
► We measure a firm's social capital by network-level technological diversity.
► Network diversity has an inverted U-shaped relationship with firm innovation.
► Increasing absorptive capability will increase the value of network diversity.
► Network composition is the key factor in the construction of social capital.