Abstract: Using a sample of China’s A-share listed companies from 2004 to 2017, we examine whether the affiliated firms’ network positions will affect the firms’ innovations. The results suggest that, compared with standalone firms, business groups are more positively associated with firm innovations, and the greater the network centrality of an affiliated firm, the higher innovation of the company. There is evidence that affiliated firms with greater network centrality have a stronger role in mitigating financing constraints, and gain more technological spillover to promote innovations. In addition, the information gathered by affiliated firms with greater network centrality encourages enterprises to acquire more innovative firms, and invest more in corporate venture capital, which increases their future patents. This paper helps to open the “black box” of the internal structure of business groups, and provides empirical evidence for understanding the interactions between group members.

Key words: business group, network centrality, innovation, technology-oriented M&A, corporate venture capital