Abstract: The relationships with suppliers and customers constitute important business networks of enterprises, which are also vital for winning strategic competitive advantage. Using data from Chinese A share main board companies of 2007-2014, this paper examines the relation between concentration ratios of suppliers/customers and R&D expenditures. We find that there is a significant negative effect of suppliers/customers’ concentration ratios on R&D expenditures, showing that the worry of hold-up problems reducing firms’ asset-specific investments such as R&D expenditures. The above mentioned negative effect is more significant in non-SOEs. Our paper underlines the effect of supply-chain relationship networks on firms’ innovation activities.

Key words:  relationship networks, asset specificity, ownership type, R&D expenditure