Abstract

Although numerous benefits are associated with interfirm ties, these external relationships can also have negative consequences. Theoretically based in the relational component of social capital, we identify one potentially serious consequence of interfirm ties, propensity of firms engaging in illegal behavior. Results of our study of S&P 500 firms suggest that companies benefit from a lower likelihood of illegal behavior when they have numerous weak ties to other firms. Conversely, when they become overly embedded in a network of strong ties, they are more likely to engage in illegal behavior. We also found evidence that reciprocity and status similarity influence firms’ propensity to engage in illegal behavior.