Received: 15 October 2018 Revised: 1 June 2020
DOI: 10.1002/joom.1107
RESEARCH ARTICLE
Supply base innovation and firm financial performance
Yan Dong1 | Keith Skowronski1
Fan Zou1
1
Department of Management Science,
Darla Moore School of Business,
University of South Carolina, Columbia,
South Carolina
2
Department of Supply Chain
Management, Haslam College of Business,
University of Tennessee, Knoxville,
Tennessee
Correspondence
Sriram Venkataraman, Department of
Management Science, Darla Moore School
of Business, University of South Carolina,
1014 Greene Street, Columbia, SC 29208.
Email: sriram.venkataraman@moore.
sc.edu
Handling Editors: Subodha Kumar,
Sriram Narayanan, Fabrizio Salvador
1 | INTRODUCTION
Firms must create new products and services to be com-
petitive, or in other words, they must be innovative
(Dröge, Vickery, & Markland, 1994; Porter, 2008). Firms
invest in R&D to achieve this goal, and these investments
have been shown to lead to better financial performance
(e.g., Geroski, Machin, & Van Reenen, 1993). More
All authors contributed equally to the manuscript.
J Oper Manag. 2020;1–29. wileyonlinelibrary.com/journal/joom
Accepted: 9 June 2020
| Sining Song2 | Sriram Venkataraman1 |
Abstract
Firms are increasingly sourcing innovation from their supply chain partners.
Meanwhile, supply chains have evolved into complex networks, which compli-
cates the role that supply chain partners play in innovation and financial per-
formance of firms. Previous research has mainly focused on the direct effect of
innovation on a firm's financial performance, overlooking the innovativeness
and complexity of supply networks. In this research, we focus on a firm's sup-
ply base, defined as the first tier of a supply network, and investigate the rela-
tionship between the intensity of R&D within the supply base and the
financial performance of the focal firm. We also examine the moderating role
of three aspects of supply base complexity—Number of suppliers, differentia-
tion, and inter-relationships among suppliers. Utilizing secondary data from
Bloomberg and Compustat, we find that the R&D intensity of a firm's supply
base is positively associated with the firm's financial performance. Further, all
three aspects of supply base complexity negatively moderate this relationship.
These findings make important contributions to the literature by establishing a
direct, positive relationship between supply base R&D and firm financial per-
formance, which is attenuated by complexities within the supply base.
KEYWORDS
empirical research, supply base complexity, supply base innovation, supply network
recently, firms have begun to utilize their suppliers to
supplement internal R&D investments (Choi &
Krause, 2006; Narasimhan & Narayanan, 2013). For
example, Apple enjoyed substantial financial success
from its iPod and MacBook, which were developed using
multiple innovations from Apple's suppliers, such as
Samsung, LG, and TGK (Dedrick, Kraemer, &
Linden, 2010). The innovativeness of a firm's suppliers
can significantly affect the success of new products and
the bottom line of the firm. However, relying on suppliers
as a source of R&D may not always be helpful, as it may
© 2020 Association for Supply Chain Management, Inc. 1
2 DONG ET AL.
create challenges in coordinating efforts across multiple
parties (Dhanaraj & Parkhe, 2006; Li, Poppo, &
Zhou, 2010). For example, the delay of Boeing's launch of
the 787 Dreamliner was traced back to the complexity of
integrating new technologies across the supply chain (Tang,
Zimmerman, & Nelson, 2009). LEGO also encountered sim-
ilar challenges when developing a packaging solution with
its suppliers (Andersen & Gadde, 2019). Therefore, it is of
critical, practical importance to understand how aspects of
a firm's supply chain influence the firm's ability to generate
financial outcomes from supplier R&D.
A firm's supply chain is a key component of the firm's
innovative ecosystem (e.g., Azadegan, Dooley, Carter, &
Carter, 2008; Dyer & Hatch, 2004), and previous research
has illustrated the impact of a firm's supply network on
firm innovation (e.g., Bellamy, Ghosh, & Hora, 2014). We
add to this literature by focusing on the aspect of the sup-
ply network that the firm directly interacts with—the
supply base. A firm's supply base is the “portion of the
supply network that is actively managed by the focal
company through contracts and purchasing of parts,
materials, and services…and it is the portion of the supply
network that is within the managerial purview of the
focal company” (Choi & Krause, 2006, p. 639). The dis-
tinction between a supply network and a supply base is
that the focal firm is not usually in direct interaction with
all aspects of the supply network, whereas the focal firm
directly selects and actively manages the firms that con-
stitute its supply base.
We focus on the supply base, as opposed to the sup-
ply network, for two reasons. First, the relationship
between supply base innovation and firm financial per-
formance has, to the best of our knowledge, yet to be
empirically examined. As Lu and Shang (2017) explain,
“a central challenge for advancing supply chain struc-
ture research, therefore, is to show how and why sup-
ply base structural characteristics influence buyers’
financial performance” (pp. 23–24) because “it is the
supply base that more directly and strongly influences
performance” (p. 23). Narasimhan and Nar-
ayanan (2013) echo a similar sentiment, arguing that
“the number of direct ties that firms have with their
supply network partners is a significant factor in supe-
rior innovation performance. In contrast, indirect ties
are not as helpful in furthering innovation perfor-
mance” (p. 30). Anecdotal evidence also aligns with
these arguments. For example, Fiat Chrysler Automo-
bile Group (FCA) reports that its supply base has a pos-
itive influence on FCAs innovation performance
(FCA, 2018, p. 95). Thus, we complement the literature
of network characteristics by examining the aspect of
the network that directly interacts with the focal
firm—The supply base. Second, and possibly more
importantly, by examining the supply base, we are bet-
ter able to develop actionable managerial implications.
We focus on two aspects of a firm's supply base: The
supply base's R&D intensity (SBRDI) and the complexity
of the supply base. When a focal firm is committed to
enhancing financial performance through innovation, it
may support this objective by leveraging the innovative
activities of its suppliers. Thus, the level of R&D intensity
of its supply base should affect the firm's financial perfor-
mance. However, not all firms benefit equally from sup-
ply base R&D (Chick, 2013). The complexity of a firm's
supply base may affect the firm's ability to assimilate new
knowledge among suppliers because complexity affects
the ease of coordinating activities within the supply base
(Choi & Krause, 2006; Lu & Shang, 2017). Following
Choi and Krause's (2006) conceptualization of supply
base complexity, we examine the moderating effects of
three categories of supply base characteristics: number of
suppliers (directly observable as the number of suppliers
in the supply base), differentiation (operationalized as the
different countries that members of the supply base are
headquartered in—the spatial complexity), and the inter-
relationships among suppliers (operationalized as the
sales agreements between members of the supply base,
which we refer to as commercial interconnectedness1).
We combine supply chain structure data from Bloomberg
and financial data from Compustat to construct a 7-year
panel dataset of 753 public U.S. manufacturing firms.
Using this data, we estimate econometric models to
examine the effect of SBRDI on a firm's financial perfor-
mance and the moderating effects of supply base com-
plexity on the relationship between SBRDI and the firm's
financial performance.
We find that, on average, SBRDI is positively associ-
ated with a focal firm's financial performance
(operationalized as ROA in this study). Thus, supply base
R&D activities indeed contribute to the firm's financial
bottom line. However, we also find that all three aspects
of supply base complexity—the number of suppliers,
the spatial complexity, and the commercial
interconnectedness—attenuate (i.e., negatively moderate)
the relationship between SBRDI and the firm's financial
performance. While a complex supply base, with a larger
number of suppliers, suppliers from a more diverse set of
countries, and a higher level of commercial interconnec-
tions, may appear to allow the firm to access a more
diverse set of knowledge sources and engage in faster
knowledge diffusion, our results show the opposite. We
find that supply base complexity tends to inhibit the ben-
eficial effect of SBRDI on a firm's ROA because complex-
ity heightens coordination and integration challenges.
Our results, therefore, highlight the downside of a com-
plex supply base. In other words, partnering with a
DONG ET AL.
concentrated, relatively homogenous, yet interestingly,
less commercially interconnected, group of suppliers
appears to be advantageous for the firm to turn supply
base R&D into profitability.
This study makes multiple theoretical contributions.
First, while the literature has established the effects of a
supply network on innovation outcomes, such as patents
(e.g., Bellamy et al., 2014), these effects may not lead to
positive financial returns (e.g., Gittelman, 2008). Our
research extends the literature by showing that an inno-
vative supply base can be a driver of firm profitability.
This finding is consistent with anecdotal evidence dis-
cussing that the supply base is an immediate, critical con-
tributor to firm financial bottom lines. Second, while
literature suggests that supplier innovation is mostly
beneficial (e.g., Wagner, 2012), Narasimhan and
Narayanan (2013) argue that may not be the case concep-
tually. By empirically examining the moderating effects
of supply base complexity, we illustrate that complexity
can inhibit a firm's ability to turn supplier innovation
efforts into positive financial returns. Our results show
that when the supply base is too complex, such as when
it has a large number of suppliers, suppliers broadly dis-
persed across countries, or suppliers who are frequently
connected among themselves through sales agreements,
it can impede a firm's ability to generate financial returns
from supply base R&D. By introducing the moderating
role of supply base complexity, we identify conditions
under which firms may not be able to take advantage of
supply base R&D. Overall, our findings contribute to the
literature discussing the importance of supply base inno-
vation and complexity, as well as provide practical impli-
cations for managers when determining the structure
and configuration of the supply base.
2 | RELATED LITERATURE
2.1 | Supply base innovation
Research has extensively examined how internal innova-
tive activities affect firm performance by examining fac-
tors such as different innovation types, resource
allocation, technological capability, managerial attitudes,
compensation structure, and organizational culture
(e.g., Dewar & Dutton, 1986; Hess & Rothaermel, 2011;
Rosenbusch, Brinckmann, & Bausch, 2011). More
recently, research has begun to examine how a firm's
supply chain can affect a firm's innovation activities
(Adner, 2006; Dhanaraj & Parkhe, 2006), recognizing that
suppliers are an important source of knowledge and tech-
nological know-how (Azadegan & Dooley, 2010;
Cassiman & Veugelers, 2006; Craighead, Hult, & Ketchen
3
Jr., 2009). This stream of literature suggests that the
firm's supply network can enhance the firm's R&D per-
formance and financial outcomes through knowledge
exchange (Ahuja, 2000) and faster responses to ever-
changing consumer needs (Bernardes, 2010). Narasimhan
and Narayanan (2013) argue that an innovative supply
network may enhance a firm's R&D and innovation out-
comes by introducing new and diverse information and
ideas. Li et al. (2010), however, find that differences
between the firm and its suppliers may create cognitive
barriers that impede knowledge acquisition and sharing.
Relatedly, Bellamy et al. (2014) find that supply network
interconnectedness, accessibility, and innovativeness
affect focal firm innovation outputs.
While studies have examined the effects of supply
network characteristics on a focal firm's innovation out-
put, the influence of supply base, or network, innovation
on firm financial performance is unsupported by empiri-
cal evidence. Supply base innovation refers to the capa-
bility of a firm's first-tier suppliers to develop and
introduce “new products, new methods of production,
new markets, new sources of supply, and new business
processes” (Azadegan et al., 2008, p. 15). A firm's supply
base can serve as an immediate and external source for
technological capability and know-how and has been
argued to have a stronger impact on the focal firm than
suppliers deep in the network (Lu & Shang, 2017). The
automobile industry is a great example of this phenome-
non, where large original equipment manufacturers
(OEMs) rely on their major first-tier suppliers for innova-
tive activities. In this research, we explore the role of sup-
ply base innovative activities, specifically R&D, on the
firm's financial performance.
2.2 | Supply base complexity
While a firm's supply base may provide innovative tech-
nologies, processes, products, and services that finan-
cially benefit the firm, the supply base plays a
complicated role during this process. Translating an
innovative idea from the supply base into financial
returns requires (a) coordinating actions with suppliers
as well as (b) integrating knowledge from those different
sources, both of which highly depend on supplier charac-
teristics (Dougherty, 1992; Lu & Shang, 2017). Supply
base complexity affects both coordination and integra-
tion, and, therefore, emerges as an important consider-
ation for firms.
While the literature consistently argues that there are
multiple aspects of supply base complexity, there is less
agreement as to what aspects of a supply base define
complexity. For example, Choi and Krause (2006)
4 DONG ET AL.
conceptualize three broad aspects of supply base com-
plexity: “(a) the number of suppliers in the supply base,
(b) the degree of differentiation of these suppliers, and
(c) the level of inter-relationships among the suppliers”
(p. 641). In contrast, Lu and Shang (2017) conceptualize
five aspects of supply base complexity: Horizontal com-
plexity, spatial complexity, cooperative complexity, verti-
cal complexity, and eliminative complexity. Horizontal
complexity, spatial complexity, and cooperative complex-
ity are analogous to the aspects from Choi and
Krause (2006), respectively; whereas vertical and elimina-
tive complexity are more network-oriented measures. As
our focus is on the supply base, we do not examine the
more network-oriented measures and restrict our focus
to the three broad aspects identified by Choi and
Krause (2006). This focus enables the examination of
aspects of the supply base that (a) require information
solely about the firms’ first-tier suppliers (i.e., no other
levels within the supply chain), (b) are consistent with
the extant supply base complexity literature (e.g., Choi &
Krause, 2006), (c) are visible to managers and, thus, are
able to be used in supply base decisions (e.g., many sup-
pliers will not divulge their other customers, which
makes eliminative capacity difficult for firms to capture),
and (d) have been shown to have a direct impact on
financial performance (e.g., Lu & Shang, 2017).
Aspects of supply base complexity, such as the num-
ber of suppliers, may, at first glance, appear to promote
innovation, but these aspects are likely to hinder supply
base driven innovations. For example, firms may want to
engage with a large number of suppliers to gain access to
more knowledge resources. However, such efforts likely
make it more difficult to develop close relationships
(Vachon & Klassen, 2006), which can determine the
effectiveness of the role of suppliers in support of a firm's
innovation efforts (Sivadas & Dwyer, 2000). Thus, a
larger number of suppliers likely impedes the coordina-
tion required to develop innovations with the supply
base. Empirically, increases in the number of suppliers in
the supply base have also been found to be positively
associated with the frequency of supply chain disruptions
(Bode & Wagner, 2015) and negatively associated with
firm financial performance (Lu & Shang, 2017).
The degree of differentiation among suppliers also
likely hinders innovation driven by the supply base. The
degree of differentiation captures the heterogeneity
among supply base members on “different characteristics
such as organizational cultures, operational practices,
technical capabilities, and geographical separation”
(Choi & Krause, 2006, p. 642). Broadly, this category
examines if supply base members have diverse or similar
backgrounds. While partnering with suppliers that have
diverse backgrounds may enable the focal firm access to
more unique knowledge, it can also have significant
drawbacks. Diverse suppliers have different norms, cul-
tures, and communication processes that can impede
coordination. While Choi and Krause (2006) discuss that
differentiation can be defined using a variety of supplier
characteristics, the empirical supply base complexity lit-
erature has focused on spatial complexity (e.g., Bode &
Wagner, 2015; Lu & Shang, 2017). For example, Bode
and Wagner (2015) find that spatial complexity, mea-
sured as the amount of the firm's purchasing volume
spread over five different regions, is positively associated
with the frequency of supply chain disruptions. Lu and
Shang (2017) also examine the effects of spatial complex-
ity on firm financial performance and measure spatial
complexity as the number of countries from which sup-
pliers in the supply base originate. Lu and Shang (2017)
find that spatial complexity is not positively associated
with firm financial performance for any of the firms in
their sample.
The final aspect of complexity we examine is the
level of inter-relationships among the suppliers
within a supply base (Choi & Krause, 2006). While
Choi and Krause (2006) conceptualize this concept to
mainly refer to “the exchange of physical goods”
(p. 643) between supply base members, other
research has conceptualized this more broadly as
interconnectedness. Interconnectedness is defined as
“the degree to which supply [base] partners of a focal
firm are connected to each other, and thus share
direct links amongst themselves” (Bellamy
et al., 2014, p. 360). These links can take more than
one form, such as purchasing goods, collaborative
R&D arrangements, or alliances. Suppliers that share
connections with one another could have better com-
munication flow, which should improve knowledge
transfer and, thus, benefit innovation activities
within the supply chain. However, interconnected-
ness may be detrimental to innovation because the
focal firm can lose control of projects when it is not
involved in the communication between suppliers,
which could create substantial coordination chal-
lenges. Empirically, research that has examined the
effects of interconnectedness has had mixed findings.
On one hand, Bellamy et al. (2014) find a positive
effect of interconnectedness, which strengthens the
positive relationship between network accessibility
and innovation performance. On the other hand, Lu
and Shang (2017) find that, while supply base inter-
connectedness (termed cooperative complexity in
their study) often has a positive effect on firm finan-
cial performance, that positive effect diminishes as
interconnectedness increases and eventually became
negative at high levels of interconnectedness.
DONG ET AL.
3 | HYPOTHESES DEVELOPMENT
We measure a firm's financial performance using the
firm's return on assets (ROA),2 a widely studied financial
outcome in the context of innovation (Lu & Shang, 2017;
Mackelprang, Habermann, & Swink, 2015). We measure
a firm's supply base innovation activities using the supply
base's R&D intensity (SBRDI). Following the literature
that argues for the influential role of the supply base
(e.g., Ahuja, 2000; Choi & Krause, 2006; Lu &
Shang, 2017; Sobrero & Roberts, 2002), we focus on the
direct effect of SBRDI on a firm's ROA and the moderat-
ing role of supply base complexity.
3.1 | Supply base R&D intensity on ROA
Firms conduct R&D to create new products and services,
as these innovations contribute to firms’ financial returns
and long-term growth (Arora et al., 2004; Porter, 1992).
However, R&D activities are costly, so firms may also
look to external sources for R&D, and the firm's supply
base is the group of external parties that plays a critical
role in the development of new products and services
through R&D (Choi & Krause, 2006). For this reason,
Liker and Choi (2004) suggest that supplier innovation
activities are a major factor contributing to firms’ com-
petitive advantages and financial performance. Therefore,
when a firm utilizes a supply base that invests more in
R&D, the firm should see an improvement in financial
performance, specifically an increase in ROA, for two
reasons: An increase in revenue and a decrease in costs.
An estimate of 25%–45% of firm profitability comes
from product innovations, with 65% of those innovations
coming from supply chains (ISM, 2017). Innovative activ-
ities from the supply base, such as new product and ser-
vice design, can be utilized by focal firms to generate
revenue. For instance, large automakers, such as General
Motors (GM) and Volkswagen, rely heavily on first-tier
suppliers to assist in the development of new products
and services to increase sales and net income (Azadegan
et al., 2008; Henke & Zhang, 2010; Hult, Hurley, &
Knight, 2004). The supply base can also provide
supporting technologies and know-how to help focal
firms better commercialize products. For example, the
redesigning of production tools to support Herman
Miller's launch of PVC-free products required significant
efforts from its supplier to refine and resolve technical
issues (Lee & Bony, 2008). In addition, the supply base
can contribute to revenue growth by facilitating new
market entry for focal firms (ISM, 2017). GM, for
instance, expanded into the autonomous vehicle market
by leveraging intellectual property and expertise from its
5
supply base (Senai, 2018). More importantly, R&D inten-
sive suppliers can help reduce focal firms’ costs. For
example, Ellram and Choi (2000) detail how suppliers
can assist in product and process design, which contrib-
utes to direct manufacturing cost reduction. R&D inten-
sive suppliers can also make investments in equipment,
tools, and training (Song & Di Benedetto, 2008), saving
on costs that otherwise have to be incurred by focal firms.
Therefore, the more R&D intensive the supply base, the
more likely the focal firm is able to both generate reve-
nue and lower costs, directly contributing to an increase
in ROA (Henke & Zhang, 2010). Formally, we
hypothesize:
Hypothesis 1 SBRDI is positively associated with the
focal firm's ROA.
3.2 | Supply base complexity
Supply base complexity affects how a firm coordinates
with and learns from external sources as well as how the
firm integrates and implements what it has learned. Choi
and Krause (2006) conceptualize three dimensions of sup-
ply base complexity: (a) the number of suppliers, (b) their
degree of differentiation, and (c) the level of inter-
relationships among them. The latter two dimensions are
broader than the first dimension and require selecting
operationalizations. Following other operationalizations in
the supply base complexity literature, we operationalize
the degree of differentiation using spatial complexity
(e.g., Bode & Wagner, 2015; Lu & Shang, 2017) and the
level of inter-relationships among suppliers using sales
agreements between supply base members, or the com-
mercial interconnectedness (e.g., Bellamy et al., 2014;
Lu & Shang, 2017).
3.2.1 | Number of suppliers
Engaging with a large number of suppliers could give the
firm access to more knowledge inputs. Therefore, a firm
may consider utilizing a large number of suppliers in the
supply base for innovation activities. However, utilizing a
larger number of suppliers will have substantial draw-
backs. The number of suppliers that interact with a focal
firm affects the level of coordination needed to achieve
efficiency in operations (Handfield & Nichols Jr, 1999).
The smaller a firm's supply base, the easier and more
effective it is for the focal firm to acquire, assimilate,
transform, and deploy supplier-inspired innovations and,
thus, to achieve better financial outcomes. For a supply
base with fewer suppliers, the level of engagement
6 DONG ET AL.

T A B L E 1 Industry distribution
SIC Description Percent (%) Cumulation (%)
across SIC sectors
20 Food and Kindred Products 3.33 3.33
21 Tobacco Products 0.40 3.73
22 Textile Mill Products 0.34 4.07
23 Apparel & Other Textile Products 0.35 4.41
24 Lumber & Wood Products 0.22 4.63
25 Furniture & Fixtures 1.20 5.83
26 Paper & Allied Products 1.24 7.06
27 Printing & Publishing 0.38 7.45
28 Chemical & Allied Products 28.29 35.74
29 Petroleum & Coal Products 1.66 37.40
30 Rubber & Miscellaneous Plastics Products 1.43 38.82
31 Leather & Leather Products 0.17 38.99
32 Stone, Clay, & Glass Products 0.74 39.73
33 Primary Metal Industries 1.72 41.45
34 Fabricated Metal Products 2.42 43.87
35 Industrial Machinery & Equipment 12.37 56.24
36 Electronic & Other Electric Equipment 21.62 77.86
37 Transportation Equipment 5.76 83.62
38 Instruments & Related Products 14.84 98.45
39 Miscellaneous Manufacturing Industries 1.55 100

TABLE 2 Summary statistics of the raw data

Variable Description Observed Mean SD Min Max

Focal firms
fat Total assets 197,773 78,643.91 101,497.90 0.56 473,712.00
fsale Net sales 197,773 58,219.38 82,009.14 0.00 470,171.00
fxrd Research and development expenses 197,773 2,204.45 2,828.65 0.00 13,098.00
fib Net income 197,773 3,902.07 7,786.86 −16,265.00 53,394.00
finvt Total inventories 197,773 5,835.21 7,587.75 0.00 47,257.00
flifr LIFO reserve 192,850 272.00 1832.48 −384.00 25,600.00
fppegt Total property, plant, and equipment 197,369 47,793.08 89,230.03 0.00 546,691.80
fxsga Selling, general, and administrative expenses 184,200 8,168.17 8,285.62 0.45 31,974.00
Suppliers
r Revenue share (%) 74,158 0.04 0.09 0.00 1.00
sat Total assets 191,602 10,576.54 54,545.41 0.00 2,744,387.00
ssale Net sales 190,780 6,185.29 19,886.19 −1,408.00 540,696.60
sxrd Research and development expenses 139,902 415.33 1,430.29 0.00 22,620.00

Note: All the variable names are adopted directly from Compustat and Bloomberg. The unit of Revenue Share is percentage, while all other
variables are millions of dollars.

between a focal firm and suppliers in day-to-day interac- interactions (Bellamy et al., 2014; Vachon &
tions should be higher than for a firm with a larger sup- Klassen, 2006). Frequent interactions allow these firms to
ply base. Hence, a smaller number of suppliers promotes readily share information and absorb knowledge in inter-
greater frequency and intimacy of focal firm–supplier active learning (Pihlajamaa, Kaipia, Säilä, &
DONG ET AL. 7

TABLE 3 Variable construction

Variable Description Category Calculation References

ROA Return on asset Dependent (fib + fxrd)/fat Adapted from Mackelprang
et al., 2015; Wagner, Grosse-
Ruyken, & Erhun, 2012
R&D_s Supply base R&D Independent Revenue share weighted sum New
intensity of sxrd/revenue share
weighted sum of ssale
NumberofSuppliers_s Total number of Independent Number of suppliers in the Adapted from Lu &
suppliers in the supply supply base Shang, 2017
base
SpaComplex_s Supply base spatial Independent Number of unique countries in Lu & Shang, 2017
complexity the supply base
Intercon_s Supply base commercial Independent Number of suppliers that are Adapted from Bellamy
interconnectedness also the suppliers of other et al., 2014; Lu &
suppliers in the supply base Shang, 2017
Concentration_s Supply base Control Revenue share weighted sum Adapted from Sridhar,
concentration of squares of suppliers’ Narayanan, &
transaction percentage with a Srinivasan, 2014 and
focal firm Bharadwaj, Bharadwaj, &
Konsynski, 1999
Size_s Supply base size Control Revenue share weighted sum Serpa & Krishnan, 2017; Modi
of ln(sat) & Mishra, 2011
Size_F Focal firm size Control ln(fat) Serpa & Krishnan, 2017; Modi
& Mishra, 2011
R&D_F Focal firm R&D Control fxrd/fsale Bettis & Mahajan, 1985;
intensity Bellamy et al., 2014
InventoryEfficiecy_F Efficiency of utilizing Control fsale/fppegt Adapted from Modi &
production resources Mishra, 2011
ProductionEfficiency_F Efficiency of utilizing Control fsale/(fint + flifr) Adapted from Modi &
inventory resources Mishra, 2011
MarketEfficiency_F Efficiency of utilizing Control fsale/fxsga Adapted from Modi &
market resources Mishra, 2011

Tanskanen, 2017). For example, large OEMs have pur-
posely reduced the number of suppliers in their supply
bases to more effectively focus on developing and sharing
new technologies (Ballew & Schnorbus, 1994; Choi &
Krause, 2006).
Furthermore, firms with fewer suppliers are more
likely to devote more effort to nurturing deep relationships
and engaging in supplier development activities (Choi &
Krause, 2006; Serpa & Krishnan, 2017). For example,
Honda's Best Practices (BP) program focuses on supplier
development by building a support structure into sup-
pliers’ organizations (Hartley & Choi, 1996). This
enhances inter-firm goal alignment and enables the focal
firm to produce innovations at a faster rate and generate
more value when it utilizes a supply base with R&D capa-
bilities (Luo & Deng, 2009; Sivadas & Dwyer, 2000). Close
relationships also increase the responsiveness of a firm's
supply base, as suppliers are willing to quickly respond
and adapt to the focal firm's needs (Gibson &
Birkinshaw, 2004; Handfield & Bechtel, 2002; Kanda &
Deshmukh, 2008). This enhances a firm's ability to better
integrate supplier resources and capabilities. In their inter-
views with companies on supplier-driven innovations,
Pihlajamaa et al. (2017) find that successful collaboration
and close partnerships with suppliers were the key to turn-
ing supplier innovations into financially successful prod-
ucts. Taken together, even though engaging with a larger
number of suppliers could grant a firm access to more
knowledge inputs, the difficulties in coordination and col-
laboration when engaging with a larger supply base
should impede a firm's ability to utilize the supply base as
a source of innovation. Hence, we hypothesize:
Hypothesis 2 The number of suppliers in the supply base
negatively moderates the relationship between SBRDI
and the focal firm's ROA.
8 DONG ET AL.

TABLE 4 Supplier headquarter locations TABLE 4 (Continued)

Country Frequency Percent Country Frequency Percent

United States 1,697 22.32 Argentina 2 0.03
Japan 1,182 16.41 Bangladesh 2 0.03
China 1,046 14.67 Bulgaria 2 0.03
Korea 799 10.23 Cyprus 1 0.01
Taiwan 739 9.46 Czech Republic 1 0.01
United Kingdom 274 3.51 Guernsey 1 0.01
India 244 3.12 Hungary 1 0.01
Germany 178 2.28 Isle of Man 1 0.01
Canada 165 2.11 Jersey 1 0.01
France 158 2.02 Jordan 1 0.01
Australia 101 1.29 Cayman Islands 1 0.01
Sweden 99 1.27 Kazakhstan 1 0.01
Israel 88 1.13 Sri Lanka 1 0.01
Hong Kong 78 1.00 Lithuania 1 0.01
Switzerland 70 0.90 Latvia 1 0.01
Italy 46 0.59 Malta 1 0.01
Norway 45 0.58 Nigeria 1 0.01
Finland 41 0.52 Puerto Rico 1 0.01
Malaysia 40 0.51 Portugal 1 0.01
Poland 40 0.51 Slovenia 1 0.01
Netherlands 37 0.47 Slovakia 1 0.01
Singapore 37 0.47 Tunisia 1 0.01
Denmark 31 0.40 Ukraine 1 0.01
Russian Federation 31 0.40 Vietnam 1 0.01
South Africa 26 0.33 Total 7,476 100
Austria 25 0.32
Spain 25 0.32
3.2.2 | Spatial complexity
Indonesia 25 0.32
Turkey 24 0.31 Suppliers from different locations have heterogeneous
Belgium 23 0.29 know-how that could stimulate and facilitate innovation
Brazil 22 0.28 (Rosenkopf & Almeida, 2003). Therefore, a spatially com-
plex supply base may, at first glance, appear to facilitate
Ireland 15 0.19
firm innovation by tapping into a global knowledge base
Philippines 13 0.17
to take advantage of diverse ideas. However, a spatially
Greece 12 0.15 complex supply base presents significant challenges. A
Chile 11 0.14 high level of spatial complexity is typically associated
Luxembourg 11 0.14 with a global supply base whose suppliers come from a
New Zealand 10 0.13 wide range of countries (Bode & Wagner, 2015). While
Mexico 8 0.10 this can increase the diversity of ideas, such complexity
may weaken a firm's ability to coordinate innovation
Romania 6 0.08
activities with the supply base. Firms from different
Thailand 6 0.08
countries often utilize vastly different management styles
Pakistan 5 0.06 because organizational culture is influenced by the insti-
Peru 3 0.04 tutional environment where the company is located
Saudi Arabia 3 0.04 (Sousa & Bradley, 2008). For example, Japanese and
 DONG ET AL.

TABLE 5 Variable summary statistics and correlation matrix

Variable Mean SD Min Max (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
(1) ROA 0.09 0.13 −1.43 0.92 1.00
(2) R&D_s 0.11 0.36 0.00 8.87 −0.14 1.00
(3) NumberofSuppliers_s 20.40 54.45 1.00 611.00 0.01 −0.03 1.00
(4) SpaComplex_s 5.04 6.33 1.00 51.00 0.04 −0.04 0.83 1.00
(5) Intercon_s 2.41 12.56 0.00 315.00 0.03 −0.01 0.65 0.51 1.00
(6) Concentration_s 0.00 0.03 0.00 1.00 −0.02 0.34 −0.04 −0.07 −0.02 1.00
(7) Size_s 0.02 0.07 0.00 1.57 0.00 −0.01 0.86 0.64 0.58 −0.01 1.00
(9) R&D_F 0.13 0.21 0.00 3.89 −0.06 0.03 −0.04 −0.06 −0.02 −0.01 −0.03 1.00
(8) Size_F 6.42 2.52 −0.58 12.99 0.13 −0.10 0.61 0.74 0.36 −0.09 0.49 −0.15 1.00
(10) InventoryEfficiecy_F −0.10 1.79 −14.66 48.56 0.14 −0.02 0.03 0.04 0.03 −0.02 0.06 0.06 0.01 1.00
(11) ProductionEfficiency_F 0.24 1.83 −7.45 32.12 0.10 0.03 −0.09 −0.09 −0.04 0.05 −0.06 −0.16 −0.02 0.03 1.00
(12) MarketEfficiency_F −0.32 1.52 −14.66 14.33 0.04 −0.03 0.02 0.03 0.01 0.02 0.05 0.16 −0.14 0.01 0.15 1.00
9
10 DONG ET AL.

TABLE 6 Data cleaning process stronger legal systems often rely more on contractual
arrangements (Skowronski & Benton Jr, 2018). Effective
Focal firms
inter-firm learning relies on timely communication
Number of between the firm and its supply base (Chu et al., 2019;
Steps Reduction unique firms Simonin, 1999). Therefore, increases in spatial complexity
Step 1: Raw supply chain 2,090 can impede the focal firm's ability to assimilate knowl-
relationship data from edge from the supply base because the firm has to handle
Bloomberg a wider variety of relationship management practices.
Step 2: Merge with 298 1,792 Firms headquartered in different countries also
Compustat employ substantially different operational practices
Step 3: Clean dependent (Choi & Krause, 2006). Therefore, increases in spatial
variable complexity can also result in having to integrate a wider
Missing ROA 135 1,657 variety of production styles, which makes launching a
Focal Firm with 46 1,611 product with a global supply base more challenging. For
ROA < -2 or > 2 example, Tesla failed to deliver the Model X on time
Step 4: Missing revenue 590 1,021 when its complex supply base caused significant delays in
share production. Specifically, the complicated design of the
Step 5: Clean independent Model X's falcon-wing doors created significant coordina-
variable tion challenges between the California-based automaker
Missing supply base 125 896 and the Alabama-based motor and sensor supplier
R&D intensity (Zhang, 2016). Parts shortages from key suppliers, such
Missing supply base 31 865 as battery constraint from Panasonic's manufacturing
R&D intensity facility in Japan, has further aggravated the Model X pro-
Step 6: Cleaning control duction delay that continues to arise in recent years. For
variables these reasons, even though a spatially complex supply
Missing supply base 0 865
base may provide access to new ideas and technologies,
size complications from coordinating and integrating a wide
variety of relationship management and operational prac-
Missing focal firm R&D 11 854
intensity tices should outweigh those benefits. Hence, we
hypothesize:
Missing focal firm size 0 854
Missing focal firm 66 788
Hypothesis 3 Supply base spatial complexity negatively
inventory efficiency
moderates the relationship between SBRDI and the
Missing focal firm 2 786
focal firm's ROA.
production efficiency
Missing focal firm 39 747
market efficiency
3.2.3 | Commercial interconnectedness

Members of a supply base are commercially inter-

U.S. firms employ substantially different management
styles (Dyer & Ouchi, 1993). Japanese firms build strong
close relationships with suppliers (i.e., the traditional kei-
retsu structure), whereas U.S. firms rely more on eco-
nomic management mechanisms (Liker & Choi, 2004).
These differences can create difficulties for focal firms to
integrate and learn from suppliers located in regions
without shared cultural contexts (Handley &
Benton, 2013). Other aspects of the institutional environ-
ment, such as the legal system, have also been shown to
affect firms’ management practices and learning styles.
For example, firms from locations with weaker legal sys-
tems rely on relational mechanisms to manage supply
chain relationships, whereas firms from locations with
connected when they not only exchange goods (i.e., have
sales agreements) with the focal firm but also exchange
goods with other suppliers within the focal firm's supply
base. As Choi and Krause (2006) highlight, “in addition
to exchange of physical goods, exchange of information
may occur in supplier–supplier interaction” (p. 643).
Thus, commercial interconnectedness among suppliers in
a firm's supply base can enhance the flow of information
and knowledge sharing (Inkpen & Tsang, 2005). There-
fore, a highly commercially interconnected supply base is
often accompanied by richer communication and fre-
quent interactions, which improves resource pooling and
problem-solving (Provan, 1993). However, a highly com-
mercially interconnected supply base also presents
DONG ET AL. 11

TABLE 7 Main model—Fixed effects model regression results with independent variable lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 1.550*** (0.313) 0.368 (0.272) 0.624** (0.238) 0.906*** (0.190) 0.844** (0.314)
NumberofSuppliers_s 0.011 (0.012) −0.003 (−0.013) 0.010 (0.012) 0.011 (0.012) 0.018 (0.013)
SpaComplex_s 0.035 (0.105) 0.032 (0.105) −0.010 (0.104) 0.029 (0.105) −0.022 (0.105)
Intercon_s −0.000 (0.005) −0.001 (0.005) −0.001 (0.005) −0.051*** (0.011) −0.019 (0.021)
R&D_s × NumberofSuppliers_s −0.079*** (0.016) 0.047 (0.036)
R&D_s × SpaComplex_s −0.314*** (0.060) −0.396*** (0.104)
R&D_s × Intercon_s −0.339*** (0.066) −0.127 (0.133)
Concentration_s 16.362* (6.577) 16.198* (6.383) 12.376*** (3.662) 16.869* (6.930) 11.623*** (3.337)
Size_s −0.060 (0.033)
+
−0.056 (0.033)
+
−0.057 (0.033)
+
−0.060 (0.033)
+
−0.059+ (0.033)
R&D_F 1.863* (0.934) 1.865* (0.933) 1.868* (0.929) 1.862* (0.935) 1.867* (0.929)
Size_F −4.556** (1.513) −4.598** (1.514) −4.621** (1.510) −4.634** (1.512) −4.643** (1.511)
InventoryEfficiecy_F −0.358 (0.478) −0.362 (0.479) −0.343 (0.478) −0.364 (0.479) −0.339 (0.479)
ProductionEfficiency_F 0.165 (0.570) 0.165 (0.570) 0.166 (0.571) 0.163 (0.571) 0.165 (0.571)
MarketEfficiency_F 0.192 (0.989) 0.196 (0.989) 0.197 (0.988) 0.202 (0.988) 0.199 (0.989)
Constant 33.574*** (7.623) 33.595*** (7.624) 33.736*** (7.596) 33.697*** (7.637) 33.812*** (7.598)
Year fixed effects Y Y Y Y Y
Observations 2,787 2,787 2,787 2,787 2,787
R-squared 0.051 0.054 0.056 0.053 0.056
Number of Focal Firms 753 753 753 753 753

Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001; **p < .01, *p < .05, +p < .1.

substantial drawbacks. Such a supply base reduces a focal
firm's advantages of being in a “brokerage” position
(i.e., a position that has unique access to a network of
relationships; Burt, 1992, p. 353), thus weakening its abil-
ity to assert control over the supply base. When a focal
firm utilizes suppliers that are less commercially inter-
connected, it can more easily access information and
have more power in negotiations, allowing the firm to
take advantage of more opportunities and secure more
favorable terms (Burt, 1992, 1997; Gargiulo &
Benassi, 2000). This is because the firm occupies a
privileged position, where suppliers are connected to the
firm separately (Burt, 1992, 1997). Conversely, intense
supplier–supplier interactions, such as those in a highly
commercially interconnected supply base, may put a
focal firm in a disadvantageous position, as suppliers can
exchange information on, for example, pricing policies,
weakening the firm's economic power (Choi &
Krause, 2006).
More importantly, a higher level of supply base com-
mercial interconnectedness can also suggest that sup-
pliers are “connected to numerous supply chains that
ultimately generate diverse products serving diverse, and
often hard-to-predict, sets of consumers” (Bozarth,
Warsing, Flynn, & Flynn, 2009, p. 80). The resulting
interdependence between suppliers can pose substantial
challenges and risks in monitoring and coordination
across the multiple parties in the supply base. To finan-
cially benefit from supply base innovation, a firm needs
effective coordination mechanisms to transform and
deploy the resources acquired from suppliers (Azadegan
et al., 2008; Chesbrough, 2006; Narasimhan &
Narayanan, 2013). Commercial interconnectedness can
result in situations where supplier-inspired innovations
depend on multiple connected parties in the supply base
to complete activities without the involvement of the
focal firm, which may impede the focal firm's ability to
control and coordinate an innovation project
(Adner, 2006). For example, in the case of Boeing's
787, innovative yet unproven technologies from one sup-
plier failed the flight test at Boeing. This caused signifi-
cant delays, which affected deliveries from other
members in the supply base that were connected to the
supplier and depended on its delivery. The resulting
12 DONG ET AL.

F I G U R E 1 The conditional effect of SBRDI on ROA for number of suppliers, spatial complexity, and commercial interconnectedness.
Note: SBRDI is set from the 10th percentile to 90th percentile and three moderators are set from the 25th percentile (Low) to 75th (High)
percentile

TABLE 8 ROA values when SBRDI move from low to high by low and high value of moderators

Low High
NumberofSuppliers_s
R&D_s Low High Δ Low High Δ
ROA 8.531 8.823 0.292 8.606 8.748 0.142
SpaComplex_s
R&D_s Low High Δ The effect of SBRDI on ROA is not significant.
ROA 8.887 9.195 0.308
Intercon_s
R&D_s Low High Δ Low High Δ
ROA 8.644 8.922 0.278 8.691 8.802 0.111

Note: R&D_s is set from low 10th percentile (low) to 90th percentile (high) and three moderators are set from the 25th percentile (low) to
75th (high) percentile. Δ denotes the change of ROA when SBRDI moves from low to high.

failure of Boeing to launch the product on time required
billions of dollars to fix the issues (Tang et al., 2009). For
these reasons, while commercial interconnectedness
could play a positive role in enhancing knowledge diffu-
sion (e.g., Bellamy et al., 2014), interconnections among
suppliers via sales agreements likely prevent a focal firm
from being in an position to access information and limit
its control over supplier innovations, which, taken
together, may harm financial outcomes. Hence, we
hypothesize:
Hypothesis 4 Supply base commercial interconnected-
ness negatively moderates the relationship between
SBRDI and the focal firm's ROA.
4 | D A T A A N D ME A S U R E S
dataset of supply chain relationships for 2,090 firms
(i.e., buyers) that are publicly traded in the U.S. stock
market with two-digit SIC codes between 20 and 39 from
2010 to 2016. These SIC codes are consistent with our
focus on the manufacturing sector. Table 1 shows the SIC
code distribution.
Bloomberg SPLC provides transaction information
between a buyer (revenue percentage) and a supplier
(cost percentage). Other financial information was
extracted from Compustat. The combined sample
includes 1,792 unique buyers (from the original 2,090)
and 7,566 unique suppliers (from the original 11,208).
The raw data statistics are summarized in Table 2. To be
consistent with our supply chain relationship data, we
use annual data for the financial variables. We discuss
the detailed data cleaning process in Section 4.5.

4.1 | Data 4.2 | Dependent variable

Our data was collected from Bloomberg L.P. SPLC (here- Table 3 summarizes the construction of the variables in
after Bloomberg SPLC) and Compustat. We assembled a the main analysis. The main dependent variable in this
DONG ET AL.
F I G U R E 2 Marginal effects plots for the effect of SBRDI on ROA over number of suppliers, spatial complexity, and commercial
interconnectedness. Note: Variables on the x-axis are set from the 5th to 95th percentile. Dashed lines represent the 95% confidence interval
study is the return on assets (ROA) of a focal firm (Lu &
Shang, 2017; Wagner et al., 2012). ROA is traditionally
measured by net income (i.e., gross profit minus total
expenses) divided by total assets. However, calculating
ROA in this fashion may be problematic. Total expenses
include R&D expenses, which is used to calculate one of
the control variables in this study, and, thus, could create
potential model configuration issues.3 Therefore, follow-
ing previous literature (e.g., Mackelprang et al., 2015), we
adjust ROA by excluding R&D expenses from total
expenses.
4.3 | Independent variables
SBRDI is used to measure innovation activities in the sup-
ply base. R&D intensity is frequently used as a measure for
the innovativeness of a firm and is measured by the ratio of
R&D expenses to total sales (Bellamy et al., 2014; Bettis &
Mahajan, 1985). SBRDI (R&D_s) is calculated:
P
J focal firm i with a total number of J suppliers. linkjkt
sxrdijt r ijt
j=1
R&D_sit =
P
J
ssaleijt r ijt
j=1
where i denotes firm, t denotes time, and j denotes supplier
with a total number of J suppliers for each focal firm. sxrdijt
denotes the R&D expenses of supplier j of firm i in year t. rijt
is the revenue share of supplier j from firm i, and ssaleijt is
the total sales of supplier j of firm i in year t. The SBRDI of
firm i in year t (R & D_sit) is measured by the combined
weighted R&D intensity of suppliers in the supply base.
Each supplier's R&D intensity is weighted by the supplier's
revenue share from firm i, divided by the combined total
sales of those suppliers, with each supplier's total sales
adjusted by the revenue share as well.
We construct the three supply base complexity mea-
sures as follows. NumberofSuppliers_s is the total number
13
of suppliers in the supply base. Supply base spatial com-
plexity (SpaComplex_s) captures the degree to which sup-
pliers are different from each other in terms of the
country in which they are headquartered. SpaComplex_s
is calculated as the sum of the number of unique head-
quarters countries represented in a supply base (Lu &
Shang, 2017; Von Corswant & Fredriksson, 2002) based
on supplier headquarters country from Compustat.
Table 4 displays the frequency of supplier headquarters
countries.
Supply base commercial interconnectedness (Inter-
con_s) is the number of sales agreements between sup-
pliers in a supply base (Bellamy et al., 2014; Lu &
Shang, 2017) and calculated as follows:
X
J X
J
Intercon_sit = link jkt
j=1k =j+1
where i denotes focal firm, t denotes time, and j and
k denote two different suppliers in the supply base of
denotes the relationship between supplier j and supplier
k at time t, which is coded as 1 if there is a sales agree-
ment between the two suppliers and 0 otherwise. Supply
base commercial interconnectedness is measured by the
number of sales agreements between the suppliers in a
supply base. For example, if a firm has a supply base with
two suppliers, A and B, where A also has a sales relation-
ship with B, the commercial interconnectedness of the
supply base is calculated as 1.
4.4 | Control variables
We include multiple focal firm-level control variables to
account for firm-level heterogeneity. We first control for
the focal firm R&D intensity (R&D_F). R&D_F is mea-
sured by focal firm R&D investment divided by focal firm
total sales (Bellamy et al., 2014; Bettis & Mahajan, 1985).
14
We also control for inventory efficiency, production effi-
ciency, and marketing efficiency because they may
affect the financial performance of a focal firm. Inven-
tory efficiency (InventoryEfficiency_F) is an important
measure of operational performance (Lu & Shang, 2017;
Serpa & Krishnan, 2017; Sridhar et al., 2014). Produc-
tion efficiency (ProductionEfficiency_F) and marketing
efficiency (MarketEfficiency_F) directly affect financial
performance in the production and distribution pro-
cesses (Lu & Shang, 2017; Modi & Mishra, 2011). The
calculations of these three efficiency measures are dis-
played in Table 3. We also control for focal firm size
(Size_F) using the log-transformed total assets of the
focal firm (Modi & Mishra, 2011; Serpa &
Krishnan, 2017).
We also include multiple supply base-level control
variables. We control for the level of concentration of the
supply base to account for power dynamics in supply
chain relationships. A highly concentrated supply base
indicates that a focal firm has a few dominant suppliers
(Vachon & Klassen, 2006; Wagner and Bodo, 2006).
Adapted from Sridhar et al. (2014) and Bharadwaj
et al. (1999), supply base concentration (Concentration_s)
is calculated as:
"  #
XJ
ssaleijt 2
Concentration_sit = × r ijt
j=1
ssaleit
J is the total number of suppliers of focal firm i. ssaleijt
represents the total sales of supplier j of firm i in year
t and rijt is the revenue share of supplier j from focal firm
i in year t. Thus, ssaleijt/ssaleit represents supplier j's share
of total sales in the total sales of firm i's supply base in
year t, whose square terms are weighted by rijt. Supply
base concentration is thereby measured by the sum of the
weighted squared share of all suppliers in the firm's sup-
ply base. We also control for the average firm size of the
suppliers within the supply base (Size_s), which is
defined as:
X
J    
Size_sit = ln sat ijt × r ijt :
i=1
The average firm size of the suppliers within the
supply base of focal firm i in year t is the sum of log-
transformed total assets of all suppliers, with each sup-
plier's total assets being weighted by their revenue share
from firm i. Size_s is included because a supply base con-
sisting of large suppliers may create spillover benefits to
the financial performance of the focal firm (Serpa &
Krishnan, 2017). Table 5 shows the descriptive statistics
DONG ET AL.
and the correlation matrix for the variables in the main
analysis.
4.5 | Data cleaning
The data cleaning process is presented in Table 6. We
merge Bloomberg supply chain relationship data with
Compustat financial information, for which we use firm
names as CUSIP and ISIN as identifiers, respectively.
After matching the two datasets, 298 focal firms are
dropped because they do not match with any firms in
Compustat. Then, we drop observations with missing
ROA values and abnormal values of ROA (Lu &
Shang, 2017; Modi & Mishra, 2011). We also drop the
observations with missing values for transaction-value-
based revenue share because these are used as weights in
R&D_s. In the process, 590 firms are dropped due to
missing transaction values for their suppliers.4 Finally,
we drop 156 and 118 firms due to missing values for the
independent and control variables, respectively. The final
sample contains 753 focal firms with 2,787 firm-year
observations. A summarized description of the variables
is shown in Table 6.
5 | ESTIMATION MODELS AND
RESULTS
5.1 | Regression models
We estimate our main model using a fixed-effects model
with clustered robust standard errors at the focal firm-
level and controlling for year-fixed effects. As R&D likely
does not generate financial returns immediately, the
financial benefits of R&D may not reflect firm financial
performance within the same year (Jain, Girotra, &
Netessine, 2014). Therefore, to account for the potential
lagged effect of R&D investment, we lag all of the inde-
pendent and control variables by 1 year.5 We estimate
four models in the main analysis. Model 1, which
includes the control variables and the linear terms of all
independent variables, is used to evaluate Hypothesis 1.
In Models 2–4, the corresponding interaction terms are
added to Model 1. The results of the main analysis are
presented in Table 7.6
5.2 | Main results
We first discuss the effects of the control variables. In
Model 1, focal firm R&D intensity (R&D_F) is positive
and significant (β = 1.863, p < .05), and this relationship
DONG ET AL. 15

TABLE 9 2SLS fixed effects model regression results with independent variable lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 5.469*** (0.207) 5.947*** (0.252) 5.594*** (0.654) 5.654*** (0.199) 6.748+ (3.913)
NumberofSuppliers_s 0.005 (0.012) 0.011 (0.013) 0.003 (0.012) 0.005 (0.012) −0.000 (0.011)
SpaComplex_s −0.010 (0.105) −0.026 (0.100) 0.029 (0.113) −0.028 (0.105) 0.076 (0.122)
Intercon_s 0.002 (0.005) −0.000 (0.005) 0.001 (0.005) 0.042*** (0.010) −0.024 (0.028)
R&D_s × NumberofSuppliers_s −0.296*** (0.085) 0.072 (0.129)
R&D_s × SpaComplex_s −0.991* (0.470) −1.594 (0.984)
R&D_s × Intercon_s −0.956*** (0.088) 0.586 (0.635)
+
Concentration_s 33.265 (20.871) 28.766 (17.299) 12.370 (8.260) 33.876 (21.658) 6.268 (9.562)
Size_s −4.640 (2.927) −2.847 (2.770) −3.528 (2.793) −4.637 (3.025) −3.482 (3.009)
R&D_F 2.079*** (0.391) 2.085*** (0.392) 2.086*** (0.391) 2.078*** (0.393) 2.095*** (0.323)
Size_F −5.398*** (1.190) −5.555*** (1.183) −5.589*** (1.166) −5.624*** (1.157) −5.541*** (1.244)
InventoryEfficiecy_F −0.096 (0.353) −0.110 (0.345) −0.039 (0.355) −0.117 (0.348) 0.009 (0.377)
ProductionEfficiency_F 0.207 (0.458) 0.199 (0.458) 0.210 (0.470) 0.196 (0.458) 0.213 (0.420)
MarketEfficiency_F 0.005 (0.768) 0.039 (0.773) 0.033 (0.782) 0.039 (0.767) 0.008 (0.757)
Year fixed effects Y Y Y Y Y
Observations 2,626 2,626 2,626 2,626 2,626
Number of focal firms 620 620 620 620 620

Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, +p < .1.

holds across all models. This relationship is consistent
with the literature that shows the positive relationship
between focal firm R&D and its financial performance
(e.g., Mackelprang et al., 2015). Further, in Model 1, focal
firm size (Size_F) is negative and significant
(β = − 4.556, p < .01). For supply base related control
variables, supply base concentration (Concentration_s) is
positive and significant (β = 16.362, p < .05), and average
firm size of the suppliers within the supply base (Size_s)
is negative and significant (β = − .060, p < .1). Every-
thing else being equal, larger focal firms tend to have
lower ROA, and focal firms with smaller suppliers within
the supply base tend to have higher ROA. Again, these
relationships hold across subsequent models.
In Model 1, SBRDI (R&D_s) has a significant and pos-
itive association with ROA (β = 1.550, p < .001). Thus,
H1 is supported. To compute the effect of SBRDI, we use
its estimated coefficient from Model 1 and the mean
values of R&D_s and ROA from Table 5. The effect of
SBRDI is calculated:

R&D_s 0:11
βR&D_s ×  = 1:55 × = 1:89
ROA 0:09
Thus, for every 1% increase in SBRDI, the firm's ROA
would increase by 1.89% on average.
In H2, we posit that a larger supply base would have
a negative moderating effect on the relationship between
SBRDI and focal firm financial performance. In Model
2, the interaction term between SBRDI and the number
of suppliers (R&D_s × NumberofSuppliers_s) is negative
and significant (β = − .079, p < .001). Thus, H2 is
supported. In H3, we argue for a negative moderating
effect of supply base spatial complexity
(R&D_s × SpaComplex_s). The result in Model 3 is in the
expected direction and significant (β = − .314, p < .001).
Thus, H3 is supported. Finally, in H4, we posit that
increased levels of supply base commercial interconnec-
tedness will weaken the relationship between SBRDI and
firm performance. Model 4 shows the negative and signif-
icant interaction term (β = − .339, p < .001)between
SBRDI and supply base commercial interconnectedness
(R&D_s × Intercon_s), which indicates that the focal firm
may benefit less from SBRDI as suppliers become more
interconnected. Thus, H4 is supported.
To further examine the moderating effects of supply
base characteristics, we estimate and plot the conditional
effects of SBRDI on ROA (i.e., the simple slopes) in
Figure 1. High and low values of the moderators are the
75th and 25th percentiles, respectively, with SBRDI rang-
ing from the 10th percentile to the 90th percentile.7 We
then calculate the effect on ROA of increasing SBRDI
16 DONG ET AL.

T A B L E 1 0 Instrumental variables generated by Lewbel's method—2SLS fixed effects model regression results with independent
variable lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 2.230*** (0.240) 1.936*** (0.245) 2.192*** (0.271) 1.752*** (0.223) 2.194*** (0.281)
NumberofSuppliers_s 0.005 (0.014) 0.007 (0.014) 0.005 (0.014) 0.005 (0.014) 0.004 (0.014)
SpaComplex_s −0.029 (0.117) −0.035 (0.116) −0.016 (0.116) −0.038 (0.117) 0.015 (0.117)
Intercon_s 0.002 (0.014) 0.001 (0.014) 0.002 (0.013) 0.017 (0.015) 0.004 (0.017)
R&D_s × NumberofSuppliers_s −0.083** (0.026) 0.023 (0.071)
R&D_s × SpaComplex_s −0.318*** (0.084) −0.357* (0.175)
R&D_s × Intercon_s −0.348* (0.136) −0.065 (0.241)
Concentration_s 18.639*** (5.563) 15.451** (5.534) 11.581* (5.626) 16.398** (5.547) 11.239+ (5.902)
Size_s −4.158 (4.886) −3.594 (4.883) −3.789 (4.877) −4.076 (4.886) −3.885 (4.888)
R&D_F 2.064** (0.667) 2.064** (0.667) 2.066** (0.666) 2.061** (0.667) 2.066** (0.666)
Size_F −5.367*** (0.684) −5.406*** (0.684) −5.427*** (0.683) −5.444*** (0.685) −5.438*** (0.685)
InventoryEfficiecy_F −0.089 (0.299) −0.092 (0.298) −0.070 (0.298) −0.095 (0.299) −0.068 (0.298)
ProductionEfficiency_F 0.226 (0.305) 0.227 (0.305) 0.228 (0.304) 0.226 (0.305) 0.228 (0.305)
MarketEfficiency_F 0.038 (0.377) 0.052 (0.376) 0.048 (0.376) 0.056 (0.377) 0.049 (0.376)
Constant 9.128*** (0.152) 9.132*** (0.147) 9.010*** (0.141) 9.119*** (0.154)
Year fixed effects Y Y Y Y Y
Observations 2,753 2,753 2,753 2,753 2,753
Number of Focal Firms 747 747 747 747 747

Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, +p < .1.

from the 10th percentile to the 90th percentile for each
significant conditional effect (Table 8). In Figure 1 Panel
(a), the slopes are significant for high and low values of
the total number of suppliers. When the total number of
suppliers is low, an increase of SBRDI from the 10th to
the 90th percentile increases focal firm ROA by 0.292.
While the effect of SBRDI is still positive when the total
number of suppliers is high, the change in ROA lowers to
0.142. In other words, SBRDI is only half as beneficial to
ROA when the number of suppliers increases from the
25th to 75th percentile. In Figure 1 Panel (b), the slope is
significantly different from zero for low spatial complex-
ity but not significant when spatial complexity is high.
Thus, the change in ROA is 0.308 for low spatial com-
plexity. The effect of SBRDI is not significant when spa-
tial complexity is high. Therefore, there is no effect of
SBRDI on ROA, which means that SBRDI is only benefi-
cial when spatial complexity is low. Finally, the slopes
are significantly different from zero at both high and low
values of supply base commercial interconnectedness
(see Figure 1 Panel (c)), and the changes in ROA are
0.111 and 0.278, respectively. Therefore, SBRDI is less
than half as beneficial to ROA when supply base
commercial interconnectedness increases from the 25th
to 75th percentile.
As there is one instance where the moderator makes
the effect of SBRDI on ROA insignificant (i.e., high spa-
tial complexity), we further probe the moderating effects
of supply base complexity to better understand when the
effects of SBRDI on ROA tend to be beneficial. To do this,
we also examine marginal effects plots for each of the
three moderators (Figure 2). Marginal effects plots show
the value of the simple slope of the relationship between
SBRDI on ROA over the range of each of the moderators
and also show the confidence bands of those effects.
Figure 2 shows the marginal effects of SBRDI over a
larger range for each of the three moderators (Salvador,
Rungtusanatham, & Montañez, 2015; Spiller, Fitzsimons,
Lynch Jr., & McClelland, 2013; Venkataraman,
Fredendall, Taaffe, Huynh, & Ritchie, 2018), highlights
where these effects are significant, and also indicates
location of the 25th and 75th percentiles that are plotted
in the conditional effects plots. As shown in Table 5 and
Figure 2, all three of the supply base complexity modera-
tors are right skewed. Consistent with Figure 1, Figure 2
indicates that the effects of SBRDI decrease as complexity
DONG ET AL.
increases. However, whereas in Figure 1 the effects of
SBRDI on ROA for both the number of suppliers and
commercial interconnectedness are positive and signifi-
cant, Figure 2 indicates that for more extreme values of
these moderators that is not the case. For all three mod-
erators, these effects go from positive and significant at
low levels of the moderators to negative and significant
for high values of the moderators, and the specific per-
centiles and values are shown in Figure 2. These results
suggest that SBRDI can even become counterproductive
when the supply base is highly complex.
5.3 | Robustness tests
To ensure the consistency of our main results, we con-
ducted several robustness tests, the results of which are
highly consistent with our main results. First, as innova-
tion activities may take years to generate returns, we also
estimated fixed-effect models lagged by 2 and 3 years
(Appendix A). Second, we examined clustering the stan-
dard errors at the industry level rather than the firm
level. Thus, we ran a fixed-effects model with the stan-
dard errors clustered at the 4-digits SIC codes (Appendix B).
Third, we examined whether our main results are robust
with alternative measures of financial performance,
unadjusted ROA and return on sales, shown in Appendix C
(Ittner & Larcker, 1997; Mackelprang et al., 2015).
Fourth, following Lu and Shang (2017), we also exam-
ined a different measure of spatial complexity (Appen-
dix D).8 Fifth, we performed additional robustness tests
to examine potential missing data and sample selection
issues arising from the method of constructing the sup-
ply base (Appendix E). Taken together, these results
lend additional confidence to the validity of our main
results. Additionally, many of our arguments could
imply curvilinear effects. Thus, we further examined if
there were curvilinear effects to find the optimal levels
of complexity. We ran models examining possible cur-
vilinear effects but none of the curvilinear terms were
significant.9
Finally, while we examined the size of the supply base,
we also acknowledge the relative size of each supplier in
the supply base may affect the firm's ability to effectively
turn SBRDI into financial gains. Specifically, while a firm
could have a large number of suppliers, the firm may have
a small number of suppliers that make up a large percent-
age of the firm's purchases, in essence, making those sup-
pliers key suppliers. Firms with a few key suppliers are
more likely to devote effort to nurturing deep relationships
and engaging in supplier development activities, whereas
firms with a large number of suppliers each with a small
17
fraction of revenue may be less likely to do so (Vachon &
Klassen, 2006). Therefore, we also examined the effects of
supply base concentration as an alternative to supply base
size. We reran our main model to explore the moderating
effect of supply base concentration and present the results
in Appendix F. We find that a concentrated supply base also
strengthens the relationship between SBRDI and firm
financial performance, which is consistent with, and
extends, our arguments for the size of the supply base.
5.4 | Endogeneity
We also addressed multiple potential sources of endo-
geneity (Guide Jr & Ketokivi, 2015). Simultaneity is
unlikely to be a source of endogeneity in our sample
because our results are lagged by 1 year and are still
robust up to a 3-year lag. Furthermore, if financial perfor-
mance triggers supply base changes, it usually takes a rel-
atively long time to manifest (Jain et al., 2014). However,
omitted variables are a potential endogeneity concern
because there could be other factors that are related to
both the R&D intensity of the supply base as well as the
financial performance of the focal firm (Ketokivi &
McIntosh, 2017). To address this concern, we instrument
SBRDI using the average supply base R&D intensity of
other focal firms in the same industry (identified by
4-digit SIC code) in the same year. The instrumental vari-
able (R&D_s_IVit) of focal firm i in year t is calculated as:
" ! #
1 X
K
R&D_s_IV it = R&D_skt −R&D_sit
K −1 k=1
where K is the number of firms (buyers) in the same
industry as the focal firm i (including focal firm i).
P
K
R&D skt represents the sum of R&D intensity of all
k=1
firms in focal firm i's industry. For example, in the year
2011, firms A, B, and C are in the same industry. Then,
the instrumental variable for firm A's SBRDI will be cal-
culated as the average of the SBRDI of firm B and C. We
use this measure as an instrument because the financial
performance of a focal firm would not be directly
influenced by the R&D intensity of other firms’ supply
bases. However, for focal firms in the same industry,
their supply base R&D intensities are likely correlated.
Similar types of these instrumental variables have been
widely used in the economics and marketing literatures
(e.g., Ghose, Ipeirotis, & Li, 2012; Hausman, 1996; Pet-
rin & Train, 2010). Furthermore, the interaction term
between SBRDI and the exogenous moderators (such as
18
total number of suppliers, spatial complexity, and com-
mercial interconnectedness) would also be endogenous.
To account for this endogeneity, following Wool-
dridge (2012), we created an additional instrument by
interacting R&D_s_IVit with the moderator for each of
the three interactions (R&D_s_IV×Numberofsuppliers_s,
R&D_s_IV×SpaComplex_s, and R&D_s_IV ×Intercon_s).
We then ran two-stage least square (2SLS) regression
models and the results are presented in Table 9. Our
instrumental variables pass the under-identification and weak-
identification tests. In Model 1 of Table 9, the Kleibergen–Paap
rk LM statistic of the under-identification test is 103.017
(p < .001). This test result rejects the null hypothesis that the
model is under-identified. Further, the Wald F statistic for the
Cragg–Donald weak-identification test is 75.874 (p < .001), and
the Wald F statistic of the Kleibergen–Paap rk weak-
identification test is 503.306 (p < .001). Thus, the null hypothe-
sis that the instruments are weak is also rejected. The results
from the 2SLS estimation are qualitatively consistent with
those from the main analysis. Additionally, the marginal and
conditional plots created based on the 2SLS model are consis-
tent with those from the main analysis.
To further check the potential endogeneity issue of omitted
variables, we also utilized the method proposed by Lewbel (2012),
which has been widely used in prior studies (e.g., Anderson &
Core, 2017; Nagar & Rajan, 2005). In this method, the hetero-
skedasticity in the error process is used to generate an instrumen-
tal variable that is correlated with endogenous variables. This
method allows identification without external information and
repeated measures under certain circumstances. Following
Lewbel (2012), we generate instrumental variables for supply
base R&D intensity and the three related moderators from each
of the exogenous regressors in our main model. For example, the
instruments for SBRDI are generated by regressing SBRDI on all
of the other independent variables and control variables. The
results of this analysis are displayed in Table 10. Again, the gener-
ated instrumental variables pass the under-identification and the
weak-identification tests. For example, in Model 1 in Table 10,
the Kleibergen–Paap rk LM statistic of the under-identification
test is 1,495.719 (p < .001). Further, the Wald F statistic for the
Cragg–Donald weak-identification test is 386.132 (p < .001), and
the Wald F statistic for the Kleibergen–Paap rk weak-
identification test is 1986.416 (p < .001). The results in Table 10
are qualitatively consistent with the main results.
6 | DISCUSSION AND
C O N C L U S IO N
6.1 | Theoretical implications
There are different positions regarding the effect of sup-
ply base innovative activities. Some argue that firms can
DONG ET AL.
substitute their R&D investment with R&D investments
within the supply chain (e.g., Azadegan & Dooley, 2010;
Bellamy et al., 2014). Others caution that an R&D-
intensive supply chain can be complex to manage, which
can be detrimental to firm financial performance, as
evidenced by the case of Boeing 787 (Tang et al., 2009).
This study empirically demonstrates that engaging with
an R&D intensive supply base directly boosts the firm's
financial bottom line.
More importantly, our research contributes to the lit-
erature on supply chain innovation by deepening our
understanding of the circumstances under which supply
base innovative activities are effective. Despite the litera-
ture that predominantly suggests that supplier innovation
is beneficial, anecdotal evidence suggests otherwise. Our
research highlights the importance of not just consider-
ing the innovative activities of the supply base but also its
complexity, which has received growing interest in the
field (e.g., Choi & Krause, 2006) but with a limited empir-
ical examination (c.f., Lu & Shang, 2017). We extend this
literature by empirically illustrating that the relationship
between supply base R&D and firm financial perfor-
mance is contingent on the complexity of the supply
base. Overly complex supply bases impede coordination
between a focal firm and its supply base, which can nega-
tively affect the firm's ability to utilize supply base R&D
to generate financial returns.
Specifically, we show that a larger supply base
impedes a firm's ability to generate return from supply
base R&D. Adding suppliers expands the number of
information and physical flows, which complicates fre-
quent interactions and information sharing between the
focal firm and its supply base (Bozarth et al., 2009). Our
findings illustrate that the complexity arising from a
larger supply base can result in a “dark side” of supply
base innovation, as larger supply bases may result in a
negative relationship between a supply base's R&D activi-
ties and a focal firm's financial performance. We also find
that spatial complexity can attenuate the positive effect of
the supply base's R&D activities on focal firm ROA and
even turn the relationship negative for extremely spa-
tially complex supply bases (Figure 2 Panel (b)). While
firms have been expanding their supply bases to gain
exposure to a global knowledge base and to achieve cost
advantages, this result illustrates that a globally diverse
supply base, with cultural, economic, legal, and institu-
tional differences, can be detrimental when leveraging
supply base R&D and may eventually outweigh the bene-
fits (Cheung, Myers, & Mentzer, 2011). Additionally,
commercial interconnectedness can result in a negative
relationship between supply base R&D and focal firm
ROA. Prior studies have suggested a positive role of an
interconnected supply network on innovation
DONG ET AL.
(e.g., Bellamy et al., 2014; Schilling & Phelps, 2007). In
contrast, our study indicates that the commercial inter-
dependency of suppliers may result in focal firms hav-
ing less control over their suppliers, as suppliers can
more easily share information among themselves and
improve their positions in negotiation. As a result, it
can be more difficult for focal firms to leverage R&D
within the supply base (Choi & Krause, 2006;
Gargiulo & Benassi, 2000). Overall, our results provide
a new perspective on commercial interconnectedness.
Specifically, it can significantly impede the integration
and coordination required for successfully utilizing
supply base R&D, leading to reduced financial payoffs.
In sum, this research highlights that understanding
and mitigating supply base complexity is required for
firms attempting to utilize supply base R&D to improve
financial returns.
6.2 | Managerial implications
The supply base is an important source of R&D invest-
ments that focal firms can use to improve financial
performance. Our research not only encourages firms
to collaborate with suppliers and utilize their R&D to
improve firm financial performance, but also to be
cognizant of how complexity within the supply base
can affect those efforts. When working with their sup-
pliers, firms need to bear in mind the design and con-
figuration of their supply base and the tradeoffs it can
bring.
Specifically, firms need to consider the number of
suppliers, the level of spatial complexity, and the com-
mercial interconnectedness of their supply base. A
common supply management practice to optimize
transaction costs is to reduce the number of suppliers
(Handfield & Nichols Jr, 1999). Auto companies, such
as GM, have reduced the number of suppliers in their
supply bases to focus on long-term strategic issues to
develop and share technologies (Ballew &
Schnorbus, 1994). Our study supports this practice, as a
smaller supply base has been found to be more finan-
cially beneficial to focal firms in leveraging supplier
R&D. Spatial complexity may pose coordination chal-
lenges for product development and process innovation
(e.g., language barriers, time zone differences, and cul-
tural differences), and firms need to evaluate the neces-
sity of working with suppliers from different locations.
For example, firms may consider local suppliers to
reduce geographic heterogeneity, which may increase
the firm's ability to turn supplier R&D investments into
financial returns. Additionally, when identifying and
19
evaluating suppliers, firms need to be cautious regard-
ing the interactions of suppliers within the supply base.
Commercial interconnectedness within the supply base
can prevent firms from controlling and coordinating
supply base activities to achieve financial success, and
therefore, requires careful identification and evalua-
tion before externally sourced R&D can be leveraged.
Previous research has shown that product modularity
(i.e., a modular design competence) can have a benefi-
cial impact on supplier involvement in regard to new
product development outcomes (e.g., Salvador &
Villena, 2013). Our findings parallel that research as
we find that a more modularized supply base is also
beneficial. Therefore, for critical innovation programs,
firms may consider utilizing a more modularized and
parallel supply base structure, as fewer interconnec-
tions may increase the firm's control over supply base
activities for better financial outcomes.
6.3 | Limitations
Given the availability of data, our sample period limited
us from analyzing longer-term effects of supply base
innovation on firm financial performance. Additionally,
while our data include unique transaction volumes indi-
cating the strength of focal firm–supplier relationships,
the information does not capture all supplier heterogene-
ity that may affect the contribution of innovation to firm
performance from individual suppliers. Despite these lim-
itations, we have conducted, to the best of our knowl-
edge, the first empirical study to examine supply base
R&D and complexity and their effects on firm financial
performance.
6.4 | Conclusion
Firms are increasingly utilizing their supply bases to
supplement internal R&D investments in an effort to
generate financial returns. However, these efforts have
not always resulted in improved firm performance. We
draw on the concept of supply base complexity to shed
light on the conditions that can impede a firm's ability
to turn supply base R&D into financial returns. We
show that the number of suppliers, spatial complexity,
and commercial interconnectedness attenuate the rela-
tionship between SBRDI and ROA. While firms have
been reconfiguring the size of their supply bases over
the past few decades, our result shows that other
aspects of supply base complexity should be considered
in these efforts as well. To that end, this study can be
20
used to aid in supplier selection and rationalization
decisions, especially those involving spatial complexity
and commercial interconnectedness. We hope that
future studies can further examine the relationships
between supply base complexity, supplier innovation,
and firm performance, possibly focusing on ways to
mitigate the negative effects of supply base complexity.
Specifically, we find that all three of our complexity
measures attenuate a firm's ability to generate financial
returns from supply base R&D. Therefore, future
research could investigate measures firms could imple-
ment to tackle this challenge. For example, product
modularity could possibly reduce the negative effects
of supply base complexity that we observed. Therefore,
examining if a firm's modular product design compe-
tence, or other capabilities, could mitigate the negative
effects of supply base complexity on the firm's ability to
generate financial return from SBRDI is an ideal direc-
tion for future research.
ORCID
Yan Dong https://orcid.org/0000-0002-3289-4817
Sriram Venkataraman https://orcid.org/0000-0002-
3641-2213
E N D N O T ES
1
We thank the Department Editor for suggesting this definition.
2
We use the terms ROA and financial performance interchangeably
hereafter.
3
Unadjusted ROA is used as a robustness check and the results are
highly consistent with our main results (See Table C1 in the
Appendix).
4
To address this potential source of bias, we construct a pooled data
structure in one of the robustness tests, which does not result in
reduction of sample size because of missing values for revenue
share.
5
We also estimate models with different clustering and lag periods
as robustness checks (see Section 5.3).
6
In the main results, we use the time-variant dyadic supply base
structure. As a robustness check, we also test models with rolling
bases and pooled structure (see Section 5.3).
7
The 10th and 90th percentiles of SBRDI are 0.001 and 0.167,
respectively. The 25th and 75th percentiles of the moderators are
2 and 13 (the number of suppliers), 1 and 6 (spatial complexity),
and 0 and 3 (commercial interconnectedness), respectively.
8 Business Press.
Following Lu and Shang (2017), the alternative measure is calcu-
lated as the product of the percentage of foreign suppliers and the
number of unique countries in the supply base.
9
We thank the review team for this suggestion.
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DONG ET AL. 23

A P P EN D I X A

Refer Tables A1 and A2.

TABLE A1 Robustness test with different lagging—Fixed effects model regression results with independent variable lagged by 2 years
(DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 2.743*** (0.295) 3.162*** (0.079) 1.515*** (0.211) 1.762*** (0.290) 1.271* (0.612)
NumberofSuppliers_s 0.004 (0.014) −0.014 (0.014) 0.003 (0.013) 0.005 (0.014) 0.006 (0.015)
SpaComplex_s −0.216 (0.111)
+
−0.221* (0.111) −0.270* (0.111) −0.232* (0.112) −0.267* (0.111)
Intercon_s 0.012 (0.009) 0.011 (0.009) 0.012 (0.009) −0.064** (0.020) −0.020 (0.026)
R&D_s × NumberofSuppliers_s −0.101*** (0.017) 0.011 (0.035)
R&D_s × SpaComplex_s −0.364*** (0.052) −0.300** (0.098)
R&D_s × Intercon_s −0.484*** (0.108) −0.205 (0.142)
Concentration_s 4.617 (7.651) 4.533 (7.673) 4.446 (7.675) 4.474 (7.680) 4.425 (7.685)
Size_s −0.014 (0.039) −0.014 (0.039) −0.014 (0.039) −0.021 (0.039) −0.017 (0.039)
R&D_F 13.650 (8.903) 13.578 (8.948) 13.759 (8.968) 13.493 (8.949) 13.681 (8.978)
Size_F −2.662 (1.396)
+
−2.780* (1.394) −2.819* (1.390) −2.849* (1.387) −2.858* (1.388)
InventoryEfficiecy_F 0.502 (0.572) 0.515 (0.571) 0.538 (0.570) 0.512 (0.571) 0.534 (0.571)
ProductionEfficiency_F −1.141+ (0.639) −1.143+ (0.639) −1.146+ (0.638) −1.149+ (0.638) −1.148+ (0.639)
MarketEfficiency_F −0.670 (0.701) −0.664 (0.700) −0.669 (0.701) −0.660 (0.700) −0.666 (0.701)
+ + +
Constant 133.359 (68.262) 134.014 (68.613) 135.452* (68.789) 133.657 (68.617) 135.140+ (68.872)
Year fixed effects Y Y Y Y Y
Observations 2,100 2,100 2,100 2,100 2,100
R-squared 0.135 0.144 0.145 0.143 0.145
Number of focal firms 669 669 669 669 669
+
Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, p < .1.

TABLE A2 Robustness test with different lagging—fixed effects model regression results with independent variable lagged by 3 years
(DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 0.591** (0.192) 0.791*** (0.123) 0.208 (0.198) 0.347** (0.130) −0.188 (0.899)
NumberofSuppliers_s −0.002 (0.010) −0.008 (0.011) −0.003 (0.010) −0.002 (0.010) 0.001 (0.014)
SpaComplex_s −0.114 (0.135) −0.116 (0.135) −0.132 (0.135) −0.118 (0.135) −0.139 (0.133)
Intercon_s −0.011 (0.010) −0.012 (0.010) −0.012 (0.010) −0.034** (0.011) −0.021 (0.026)
R&D_s × NumberofSuppliers_s −0.032+ (0.019) 0.025 (0.061)
R&D_s × SpaComplex_s −0.138* (0.054) −0.190 (0.121)
R&D_s × Intercon_s −0.147** (0.046) −0.060 (0.155)
Concentration_s 6.763 (4.430) 6.754 (4.433) 6.718 (4.429) 6.729 (4.430) 6.694 (4.429)
Size_s 0.006 (0.034) 0.006 (0.033) 0.007 (0.034) 0.005 (0.034) 0.007 (0.034)
(Continues)
24 DONG ET AL.

TABLE A2 (Continued)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_F −2.378 (4.613) −2.180 (4.586) −2.054 (4.575) −2.237 (4.585) −2.030 (4.574)
Size_F 0.902 (1.933) 0.816 (1.934) 0.786 (1.933) 0.787 (1.941) 0.763 (1.946)
InventoryEfficiecy_F −1.305 (0.926) −1.299 (0.926) −1.288 (0.925) −1.300 (0.926) −1.284 (0.925)
ProductionEfficiency_F 0.648 (0.648) 0.646 (0.648) 0.645 (0.648) 0.645 (0.648) 0.644 (0.648)
MarketEfficiency_F −1.161 (0.817) −1.155 (0.817) −1.158 (0.817) −1.155 (0.817) −1.159 (0.818)
Constant −17.812 (36.564) −15.487 (36.373) −14.352 (36.269) −15.759 (36.409) −14.049 (36.285)
Year Fixed Effects Y Y Y Y Y
Observations 1,503 1,503 1,503 1,503 1,503
R-squared 0.031 0.032 0.033 0.032 0.033
Number of Focal Firms 601 601 601 601 601
+
Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, p < .05, p < .1.

A P P EN D I X B

Refer Table B1.

T A B L E B 1 Robustness test with standard errors clustered at industry level—fixed effects model regression results with independent
variable lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 1.541*** (0.213) 1.909*** (0.169) 0.589+ (0.350) 0.860*** (0.105) 0.241 (0.485)
NumberofSuppliers_s 0.005 (0.012) −0.009 (0.013) 0.005 (0.012) 0.005 (0.012) 0.009 (0.014)
SpaComplex_s −0.033 (0.104) −0.035 (0.102) −0.079 (0.100) −0.038 (0.103) −0.085 (0.102)
Intercon_s 0.002 (0.005) 0.001 (0.005) 0.002 (0.005) −0.051*** (0.009) −0.009 (0.010)
R&D_s × NumberofSuppliers_s −0.081*** (0.021) 0.022 (0.035)
R&D_s × SpaComplex_s −0.311*** (0.090) −0.346*** (0.102)
R&D_s × Intercon_s −0.336*** (0.053) −0.070 (0.060)
Concentration_s 15.526* (6.364) 15.360* (6.230) 11.573** (3.686) 16.033* (6.782) 11.283** (3.420)
Size_s −0.041 (0.029) −0.036 (0.029) −0.038 (0.029) −0.041 (0.029) −0.039 (0.028)
R&D_F 2.061*** (0.421) 2.064*** (0.419) 2.066*** (0.417) 2.061*** (0.421) 2.066*** (0.417)
Size_F −5.360*** (1.144) −5.405*** (1.145) −5.426*** (1.142) −5.440*** (1.139) −5.437*** (1.142)
InventoryEfficiecy_F −0.087 (0.352) −0.092 (0.350) −0.071 (0.353) −0.095 (0.351) −0.069 (0.353)
ProductionEfficiency_F 0.230 (0.477) 0.227 (0.476) 0.228 (0.479) 0.226 (0.476) 0.228 (0.480)
MarketEfficiency_F 0.045 (0.787) 0.052 (0.787) 0.048 (0.789) 0.057 (0.786) 0.049 (0.790)
Constant 66.562*** (9.316) 67.153*** (9.409) 67.144*** (9.396) 67.193*** (9.433) 67.180*** (9.429)
Year fixed effects Y Y Y Y Y
Observations 2,753 2,753 2,753 2,753 2,753
R-squared 0.067 0.072 0.073 0.070 0.073
Number of focal firms 747 747 747 747 747

Note: Robust standard errors, clustered at 4-digit SIC level, in parentheses. ***p < .001, **p < .01, *p < .05, p < .1.
DONG ET AL. 25

A P P EN D I X C

Refer Tables C1 and C2.

TABLE C1 Robustness test with unadjusted ROA—Fixed effects model regression results with independent variable lagged by 1 year
(DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 1.550*** (0.313) 0.624** (0.238) 0.906*** (0.190) 1.906*** (0.172) −0.072 (0.544)
NumberofSuppliers_s 0.035 (0.105) −0.010 (0.104) 0.029 (0.105) 0.032 (0.105) −0.022 (0.105)
SpaComplex_s −0.000 (0.005) −0.001 (0.005) −0.051*** (0.011) −0.001 (0.005) −0.019 (0.021)
Intercon_s 0.011 (0.012) 0.010 (0.012) 0.011 (0.012) −0.003 (0.013) 0.018 (0.013)
R&D_s × NumberofSuppliers_s −0.314*** (0.060) −0.396*** (0.104)
R&D_s × SpaComplex_s −0.339*** (0.066) −0.127 (0.133)
R&D_s × Intercon_s −0.079*** (0.016) 0.047 (0.036)
Concentration_s 16.362* (6.577) 12.376*** (3.662) 16.869* (6.930) 16.198* (6.383) 11.623*** (3.337)
Size_s −0.060+ (0.033) −0.057+ (0.033) −0.060+ (0.033) −0.056+ (0.033) −0.059+ (0.033)
R&D_F 1.863* (0.934) 1.868* (0.929) 1.862* (0.935) 1.865* (0.933) 1.867* (0.929)
Size_F −4.556** (1.513) −4.621** (1.510) −4.634** (1.512) −4.598** (1.514) −4.643** (1.511)
InventoryEfficiecy_F −0.358 (0.478) −0.343 (0.478) −0.364 (0.479) −0.362 (0.479) −0.339 (0.479)
ProductionEfficiency_F 0.165 (0.570) 0.166 (0.571) 0.163 (0.571) 0.165 (0.570) 0.165 (0.571)
MarketEfficiency_F 0.192 (0.989) 0.197 (0.988) 0.202 (0.988) 0.196 (0.989) 0.199 (0.989)
Constant 62.662*** (14.572) 63.256*** (14.545) 63.291*** (14.578) 63.212*** (14.591) 63.321*** (14.543)
Year fixed effects Y Y Y Y Y
Observations 2,787 2,787 2,787 2,787 2,787
R-squared 0.051 0.056 0.053 0.054 0.056
Number of focal firms 753 753 753 753 753
+
Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, p < .1.

TABLE C2 Robustness tests with alternative DV: return on sales (ROS)—Fixed effects model regression results with independent
variable lagged by 1 year (DV: ROS × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROS ROS ROS ROS ROS
R&D_s 2.020*** (0.373) 2.547*** (0.167) 0.709 (0.443) 0.896** (0.285) −0.275 (0.887)
NumberofSuppliers_s 0.001 (0.012) −0.020 (0.013) −0.000 (0.012) 0.001 (0.012) 0.010 (0.017)
SpaComplex_s 0.049 (0.173) 0.045 (0.172) −0.016 (0.170) 0.039 (0.172) −0.024 (0.169)
Intercon_s −0.001 (0.008) −0.002 (0.008) −0.001 (0.008) −0.089*** (0.022) −0.051 (0.044)
R&D_s × NumberofSuppliers_s −0.116*** (0.028) 0.056 (0.060)
R&D_s × SpaComplex_s −0.429*** (0.106) −0.462** (0.142)
R&D_s × Intercon_s −0.555*** (0.109) −0.312 (0.259)
Concentration_s 21.625** (8.243) 21.388** (7.996) 16.179*** (4.440) 22.463* (8.865) 16.346*** (4.648)
Size_s −0.019 (0.041) −0.012 (0.041) −0.015 (0.040) −0.019 (0.041) −0.018 (0.041)
(Continues)
26 DONG ET AL.

TABLE C2 (Continued)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROS ROS ROS ROS ROS
R&D_F 4.406*** (0.692) 4.410*** (0.691) 4.413*** (0.687) 4.406*** (0.694) 4.411*** (0.688)
Size_F −6.790** (2.528) −6.855** (2.527) −6.881** (2.523) −6.922** (2.524) −6.931** (2.525)
InventoryEfficiecy_F −0.010 (0.612) −0.017 (0.612) 0.013 (0.613) −0.023 (0.612) 0.011 (0.614)
ProductionEfficiency_F −0.367 (0.730) −0.372 (0.730) 0.370 (0.730) −0.373 (0.731) −0.371 (0.731)
MarketEfficiency_F 1.428 (1.169) 1.438 (1.168) 1.432 (1.167) 1.447 (1.168) 1.438 (1.168)
Constant 99.145*** 99.990*** 99.947*** 100.187*** 100.192***
(22.205) (22.225) (22.169) (22.182) (22.163)
Year fixed effects Y Y Y Y Y
Observations 2,752 2,752 2,752 2,752 2,752
R-squared 0.047 0.050 0.051 0.050 0.052
Number of focal firms 746 746 746 746 746

Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001,**p < .01,*p < .05, +p < .1.

A P P EN D I X D

Refer Table D1.

T A B L E D 1 Robustness test with alternative spatial complexity measure—Fixed effects model regression results with independent
variable lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 1.544*** (0.292) 1.912*** (0.148) 1.718*** (0.157) 0.865*** (0.192) 1.925*** (0.403)
NumberofSuppliers_s 0.002 (0.011) −0.012 (0.011) 0.003 (0.011) 0.002 (0.011) −0.009 (0.012)
SpaComplex_s −3.051 (2.157) −3.036 (2.154) −3.177 (2.116) −3.061 (2.158) −3.143 (2.122)
Intercon_s 0.003 (0.005) 0.002 (0.005) 0.002 (0.005) −0.051*** (0.012) −0.003 (0.023)
R&D_s × NumberofSuppliers_s −0.081*** (0.019) −0.067+ (0.037)
R&D_s × SpaComplex_s −1.127*** (0.166) −0.935*** (0.094)
R&D_s × Intercon_s −0.335*** (0.066) −0.033 (0.139)
Concentration_s 14.015* (6.645) 13.858* (6.463) 5.376* (2.433) 14.518* (7.004) 6.774** (2.367)
Size_s −0.038 (0.031) −0.033 (0.030) −0.039 (0.031) −0.038 (0.031) −0.035 (0.030)
R&D_F 2.060*** (0.394) 2.063*** (0.393) 2.059*** (0.393) 2.060*** (0.395) 2.062*** (0.393)
Size_F −5.395*** (1.291) −5.442*** (1.290) −5.396*** (1.291) −5.478*** (1.287) −5.443*** (1.291)
InventoryEfficiecy_F −0.075 (0.339) −0.080 (0.339) −0.049 (0.340) −0.083 (0.339) −0.058 (0.340)
ProductionEfficiency_F 0.221 (0.453) 0.218 (0.453) 0.236 (0.455) 0.217 (0.453) 0.230 (0.455)
MarketEfficiency_F 0.037 (0.834) 0.044 (0.834) 0.029 (0.835) 0.049 (0.834) 0.037 (0.834)
Constant 67.875*** 68.470*** 67.953*** 68.533*** 68.497***
(10.933) (10.943) (10.932) (10.914) (10.945)
Year Fixed Effects Y Y Y Y Y
Observations 2,753 2,753 2,753 2,753 2,753
DONG ET AL. 27

TABLE D1 (Continued)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R-squared 0.068 0.073 0.071 0.071 0.075
Number of Focal Firms 747 747 747 747 747

Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, +p < .1.

A P P EN D I X E

Our main model uses a time-variant supply base struc-
ture, which could create a potential issue when certain
suppliers do not report their data for a year but remain
the focal firm's suppliers in that year. To examine this
potential issue, we constructed a 2-year rolling supply
base, as well as a pooled supply base structure. Under
a 2-year rolling supply base, we consider all suppliers
that appear in the previous year or in the current year
as suppliers for the current year. For example, if sup-
plier X was in the supply base of focal firm Y in the
years 2011, 2013, and 2014, supplier X will be treated
as the focal firm's supplier from 2011 to 2015 even
when absent in 2012 and 2015. The results based on
this 2-year rolling supply base structure are consistent
with our main results (Table E1). Second, in our data
cleaning process, a large number of observations were
dropped due to missing revenue share. To investigate
this issue, we constructed a pooled supply base where
a supplier that appeared in 1 year in the firm-supplier
relationship stays coded as a supplier in all other
years. Under this structure, the ultimate revenue share
of each supplier will be the average revenue shares
across all time periods. For example, the transaction
value between a supplier and its focal firm accounts
for 5% of the total revenue of the supplier in 2011 and
7% in the following year and is missing for all other
years. The revenue share of this supplier will then be
calculated as (7% + 5%)/2 = 6% for all years in our
time frame. The results of using this pooled structure
for estimation are mostly consistent with our main
results (Table E2). Note that some linear terms of sup-
ply base complexity variables (SpaComplex_s,
NumberofSuppliers_s, and Intercon_s) are omitted by
the new fixed-effects models due to the time-invariant
data structure.
Noted that SpaComplex_s, Intercon_s, and
NumberofSuppliers_s are omitted due to firm-level fixed
effects.

TABLE E1 Robustness test with 2-year rolling supply base structure—Fixed effects model regression results with independent variable
lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 1.486*** (0.374) 1.771*** (0.333) 1.965*** (0.272) 1.556*** (0.341) 1.972*** (0.237)
NumberofSuppliers_s 0.009 (0.017) 0.010 (0.016) 0.009 (0.017) 0.010 (0.017) 0.009 (0.017)
SpaComplex_s −0.140 (0.126) −0.153 (0.127) −0.135 (0.126) −0.153 (0.127) −0.134 (0.128)
Intercon_s 0.004 (0.005) 0.005 (0.005) 0.004 (0.005) 0.015* (0.007) 0.003 (0.010)
R&D_s × NumberofSuppliers_s −0.072** (0.024) −0.007 (0.112)
R&D_s × SpaComplex_s −0.283** (0.090) −0.278 (0.299)
R&D_s × Intercon_s −0.232** (0.083) 0.038 (0.213)
Concentration_s −11.769* (5.753) −11.877* (5.752) −11.972* (5.811) −11.838* (5.733) −11.968* (5.815)
Size_s −0.048 (0.053) −0.044 (0.052) −0.045 (0.052) −0.051 (0.053) −0.044 (0.052)
R&D_F −3.580 (5.116) −3.565 (5.152) −3.506 (5.171) −3.635 (5.127) −3.497 (5.174)
Size_F −1.741 (1.263) −1.780 (1.263) −1.814 (1.262) −1.779 (1.265) −1.810 (1.264)
InventoryEfficiecy_F 0.601 (0.470) 0.606 (0.470) 0.622 (0.470) 0.603 (0.470) 0.622 (0.471)
(Continues)
28 DONG ET AL.

TABLE E1 (Continued)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
ProductionEfficiency_F 0.632 (0.447) 0.626 (0.446) 0.610 (0.446) 0.629 (0.447) 0.610 (0.446)
MarketEfficiency_F −0.353 (1.071) −0.351 (1.070) −0.338 (1.070) −0.344 (1.070) −0.339 (1.071)
Constant 22.961* (10.039) 23.566* (10.034) 23.763* (10.025) 23.433* (10.051) 23.729* (10.040)
Year fixed effects Y Y Y Y Y
Observations 2,456 2,456 2,456 2,456 2,456
R-squared 0.040 0.044 0.045 0.042 0.045
Number of focal firms 719 719 719 719 719

Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, +p < .1.

TABLE E2 Robustness test with pooled supply base structure—Fixed effects model regression results with independent variable
lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 1.550*** (0.313) 0.368 (0.272) 0.624** (0.238) 0.906*** (0.190) 0.844** (0.314)
NumberofSuppliers_s – – – – –
SpaComplex_s – – – – –
Intercon_s – – – – –
R&D_s × NumberofSuppliers_s −0.055 (0.092) −0.252** (0.096)
R&D_s × SpaComplex_s −8.000** (2.883) −7.094*** (1.630)
R&D_s × Intercon_s −0.789+ (0.467) −0.746* (0.355)
Concentration_s 1.326 (2.235) 1.205 (2.237) 1.483 (2.247) 1.370 (2.262) 0.955 (2.253)
Size_s 0.963 (8.078) 1.716 (8.155) 0.904 (8.075) −5.227 (9.427) −1.486 (8.795)
R&D_F 0.360** (0.114) 0.363** (0.113) 0.455*** (0.107) 0.343** (0.111) 0.441*** (0.103)
Size_F −4.297*** (1.127) −4.231*** (1.126) −4.383*** (1.148) −4.397*** (1.144) −4.166*** (1.126)
InventoryEfficiecy_F 0.238 (0.381) 0.241 (0.381) 0.255 (0.381) 0.230 (0.381) 0.260 (0.381)
ProductionEfficiency_F 0.064 (0.458) 0.055 (0.458) 0.067 (0.458) 0.075 (0.458) 0.036 (0.457)
MarketEfficiency_F 0.829 (0.659) 0.822 (0.658) 0.839 (0.660) 0.866 (0.661) 0.840 (0.658)
Constant 39.084*** (8.373) 38.751*** (8.341) 39.453*** (8.524) 40.108*** (8.508) 38.853*** (8.336)
Year fixed effects Y Y Y Y Y
Observations 3,540 3,540 3,540 3,540 3,540
R-squared 0.030 0.030 0.039 0.042 0.051
Number of focal firms 842 842 842 842 842

Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, p < .1.
DONG ET AL. 29

A P P EN D I X F

Refer Table F1.

TABLE F1 Post-hoc analysis—The moderating effect of supply base concentration—Fixed effects model regression results with
independent variable lagged by 1 year (DV: ROA × 102)

(1) (2) (3) (4) (5)

Base M1 M2 M3 M4
Variables ROA ROA ROA ROA ROA
R&D_s 1.541*** (0.294) 1.652*** (0.214) 1.909*** (0.150) 2.158*** (0.090) 1.671*** (0.199)
Concentration_s −0.033 (0.103) −0.029 (0.103) −0.035 (0.102) −0.017 (0.103) −0.038 (0.103)
NumberofSuppliers_s 0.002 (0.005) 0.002 (0.005) 0.001 (0.005) 0.002 (0.005) 0.016** (0.006)
SpaComplex_s 0.005 (0.011) 0.006 (0.011) 0.007 (0.011) 0.005 (0.011) 0.005 (0.011)
Intercon_s 15.526* (6.471) 8.272*** (2.155) 15.360* (6.283) 11.573** (3.541) 16.033* (6.831)
R&D_s × Concentration_s 0.630*** (0.090)
R&D_s × NumberofSuppliers_s −0.081*** (0.019)
R&D_s × SpaComplex_s −0.311*** (0.072)
R&D_s × Intercon_s −0.336*** (0.067)
Size_s −0.041 (0.031) −0.041 (0.031) −0.036 (0.030) −0.038 (0.030) −0.041 (0.031)
R&D_F 2.061*** (0.395) 2.058*** (0.396) 2.064*** (0.395) 2.066*** (0.392) 2.061*** (0.397)
Size_F −5.360*** (1.305) −5.347*** (1.307) −5.405*** (1.304) −5.426*** (1.301) −5.440*** (1.302)
InventoryEfficiecy_F −0.087 (0.341) −0.069 (0.341) −0.092 (0.340) −0.071 (0.340) −0.095 (0.340)
ProductionEfficiency_F 0.230 (0.455) 0.246 (0.457) 0.227 (0.455) 0.228 (0.456) 0.226 (0.456)
MarketEfficiency_F 0.045 (0.833) 0.039 (0.833) 0.052 (0.833) 0.048 (0.833) 0.057 (0.832)
Constant 52.365*** (10.381) 52.273*** (10.394) 52.877*** (10.381) 53.031*** (10.347) 53.128*** (10.354)
Year fixed effects Y Y Y Y Y
Observations 2,753 2,753 2,753 2,753 2,753
R-squared 0.067 0.069 0.072 0.073 0.070
Number of focal firms 747 747 747 747 747
+
Note: Robust standard errors, clustered at firm level, in parentheses. ***p < .001, **p < .01, *p < .05, p < .1.