Exploring the moderating effects of absorptive capacity on the relationship between social networks and innovation

Although networks in prior research have been highlighted as a remedy to resource constraints experienced by smaller firms, little attention has been paid to understanding mechanisms through which smaller firms benefit from networks for effective innovation performance. In this paper we develop a conceptual model of direct and moderated network effects on a firm's innovation. We test this model on a large sample of small and medium-sized firms from a post-transitional and developed economy. We show that absorptive capacity moderates the relationship between networks and innovation outcomes, but with some country level variations. The implications of these results in relation to entrepreneurship theory and practice are discussed.