The Effect Of Embeddedeness Characteristics Of Subsidiaries On Technological Innovation In Business Group’s Network

Business groups are typically consist of one headquarter considerably in form as core and many subsidiaries bound together by various ties such as ownership,director interlock,related transaction and financial management.All the members of business group are legally independent entity,while business groups are complex union.With the complicating and globalization of economy,business groups are ubiquitous.Business groups fill the institutional voids and market’s imperfection in emerging economy and facilitate diversification and internationalization strategy in developed economy.In China business groups also play a central role and are considerable in form,while face the quality and technological innovation problems.The core competition advantages in business groups are from technology and product.However companies in Chinese lag far behind companies in developed countries in innovation.Under the new complicated circumstance,one company could not create new technology by oneself and has to rely more on cooperation and resource synergy between the networks.The structure of business groups has been undergoing changes over time,no longer simply hierarchy structure,more operate as whole network which is characterized by multiple connection,interaction and internal transaction.Subsidiaries have more initiative to make the operational decision and take advantages of shared relationship and resource in business groups,instead of attaching themselves to headquarters.If scholars still focus on the classical pyramid or flat structure,they would neglect the network function of business groups.Few literatures have pay attention to the effect of internal structure,relative position and relationship on subsidiaries’ technological innovation.Based on the above analysis,it is necessary to see the business groups’ members as a whole definite network,further explore the positional centrality and degree of connection of subsidiaries,and test the influence of these characteristics on the resource,motivation and decision of innovation.This paper is going to answer following questions:(1)what are the characteristics of subsidiaries when embedded in business groups,and what is the direct influence of these characteristics on technological innovation;(2)the mechanism and specific paths of the effect of structural and relational embeddedness of subsidiaries on technological innovation;(3)what is the condition of this influence?,Is there any internal or external factors to make this influence changing When the embeddedness of subsidiaries is similar?Using a social network perspective,this paper probes the relationship and communication of headquarter and subsidiaries from different layers with various embeddedness characteristics.This study has contributed to reveal the importance of position and relationship for innovation and facilitate a combined research between whole business groups and internal mechanism.The concept and boundaries of business groups are clear,as well as the network boundaries,the relationship between diverse subsidiaries are stable,which provide a new perspective for whole network study.What’s more,this paper is helpful to make subsidiaries conscious of the significance of embeddedness and initiative through which subsidiaries could spill over more knowledge,establish more regular communication and improve the relationship with headquarters to increase R&D input.We select the period of 2006-2015(10 years)and 870 listed companies affiliated to business groups for our study.To build our sample,we collect the variables one by one from annual statement,TianYan,Baidu search engine and Tonghuashun website,testing our hypothesis with Stata to do the regression,endogenous and robustness analysis.We find the following conclusions.(1)The structural embeddedness and relational embeddedness of Subsidiaries in business groups have effect on technological innovation respectively,and the degree and direction of the effect are different.The structural embeddedness reflects the structure of business groups and relative position of subsidiaries,consisting of institutional distance,geographic distance and control distance between headquarters and subsidiaries.The relational embeddedness includes the degree of main business operation relevance between subsidiaries and headquarters,the number of related top managers both working for subsidiaries and headquarters.The distinct institution provides different resource and knowledge,which facilitate breakthrough innovation for subsidiaries.The father is geographic distance between subsidiaries and headquarters,the more difficult to share the knowledge and idea in business groups.The control layer enhances the regulatory cost of headquarters and decreases the propensity to subsidiaries,so subsidiaries create less.The main business operation relevance between subsidiaries and headquarters could promote the sharing of resource and knowledge which in turn promotes innovation.The interlocked top managers could easily have the information of any members.So the related members could communicate more convenient and easily access to the core innovation resource and opportunity.(2)Financial support and transaction support from business groups act as mediator in the relationship between subsidiaries’ embeddedness and technological innovation.The effect of the two support are discrepancy,and the former plays less effective role than the later.That is to say,transaction support from business groups is the main mediator.Embeddedness of subsidiaries has diverse impact on the resource location,knowledge dissemination and technological innovation.Financial support is the direct way which could cope with the financing constraint and increase R&D input.While transaction support is a more convert way to facilitate knowledge spillover,create the R&D opportunity and provide logistics services.Transaction support also could be helpful to have the access to scarce resources and reduce the management costs.Compared with the effect of financial support,transaction support’s effect is more significant and more used during the operation and innovation cooperation in business groups.(3)The level of information asymmetry reinforces the relationship between subsidiaries’ embeddedness and technological innovation.The high level of information asymmetry makes subsidiaries face severe financial problems and the business groups’ affiliation advantages are more obvious.The information asymmetry diversifies in different industry especially in emerging economy.If the certain subsidiary faces high level of information asymmetry,potential lenders outside business group may find it hard to learn about the quality of the innovating subsidiary,so financial problems are becoming the main constraint for innovation.With the affiliation of business groups,the central position and tight relationship with parents would help subsidiary to take advantage of internal network to get more money and resource.For those subsidiaries which lie in transparency industries with less information asymmetry,equity and bond markets are more developed and the subsidiaries may rely less on business groups.(4)The internal resource endowment of subsidiaries is the moderator in the relationship between subsidiaries’ embeddedness and technological innovation.The headquarters will pay more attention to the subsidiaries with abundant resource and good profit.Different resource may attract business groups to invest more in innovation and communicate more during the R&D,though the embeddedness characters are same.If subsidiaries are good at operating,business groups would promote cooperation and synergy with subsidiary and the main effect of embeddedness on innovation is more significant.If subsidiaries have to help other member of business groups in trouble,the main effect would turn to weak.The innovation of this research includes that:(1)examine the influence of the subsidiaries’ embeddedness in business groups on technological innovation,shed light on the business groups’ mechanism to some extent,and enrich the research on whole network.Using a social network perspective,we explain the real structure and relationship inside business groups’ network,analyze embeddedness systematically and interpret the innovation decision-making and behavior of subsidiaries.(2)Find the mediate effect of business groups’ support in the relationship between subsidiaries’embeddedness and technological innovation.We define business groups’ support clearly and specifically for the first time and test its different dimension’s mediation influence.This finding completes the knowledge of business groups’ network,and provide a strong evidence for explain the mechanism of support and technological innovation.(3)Discern the moderator factors,such as the level of information asymmetry and the internal resource endowment of subsidiaries,which supplement the boundaries research about the main relationship between embeddedness and innovation.