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In this study, we address the topic of interorganizational network change by exploring factors that affect the choice of alliance and interlock partners. While many studies have been devoted to investigating various factors driving network partner choice, there is also an interesting and unexplored tension in this body of work. On the one hand, much work emphasizes change in social structureshowing that firms expand networks by forming new relationships with new partners. At the same time, other scholars emphasize stability of social structure -showing that firms tend to choose past exchange partners. We seek to reconcile this tension by proposing that firms form new relationships with new partners as a form of exploration, and form additional relationships with existing partnerships as a form of exploitation (March, 1991). Further, whether exploration or exploitation is chosen depends on the type of uncertainty that firms are facing: whether it is firm-specific or market-level uncertainty. We test our hypotheses using data on both interlock and alliance networks for the 300 largest U.S. firms during the 1988-1993 period. Our results provide some evidence that whether networks are stable or changing depends on the type of uncertainty experienced by firms.During the past twenty-five years, scholars have conducted substantial research on factors that affect partner selection in interorganizational networks. Partner selection is critical to network theory, as it is a fundamental driver of network stability and change. Pfeffer and Salancik (1978) were among the first scholars to draw attention to network change by showing that firms expand their networks by incorporating new players in an effort to alleviate the uncertainty and constraint that comes with being dependent on others (see also Burt, 1983;Gargiulo, 1993). Firms also expand their networks to learn about new practices and technologies (Kogut, 1988;Powell, Koput and Smith-Doerr, 1996).While this research focuses on network change through the alteration of network structure with new ties, a second stream of research emphasizes the stability of social structure (Wellman and Berkowitz, 1988). These studies suggest that firms will, under certain conditions, reinforce their existing network ties, forming additional relationships with pre-existing partners. For example, Podolny (1994) showed that in markets with a high degree of market uncertainty investment bankers tend to interact with those they have interacted with in the past, and Gulati (1995) showed that firms tend to repeat alliances with previous alliance partners. From this perspective, firms tend to reinvest in present network structures, rather than expanding them.The purpose of the current study is to reconcile these two perspectives and understand what determines how firms alter their network relationships. We seek to predict when firms will add new relationships and when they will expand the relationships already in place. The idea of expanding to new network partners versus reinforcing with exis...

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and three anonymous reviewers for their helpful comments and suggestions. 1A typical poison pill allows shareholders to purchase shares in the firm at a deeply discounted rate if a takeover attempt occurs without board approval. Science Quarterly, 47 (2002): 92-124 Network Learning heterogeneous experiences will be in a better position to benefit from these experiences than firms in networks composed of partners with homogeneous experiences and will therefore make better decisions. 92/Administrative NETWORK INFLUENCE AND LEARNINGThe experiences to which a firm is exposed through its associations with its network partners affect its decisions. The interlock network, for example, has been shown to affect firms' decisions because directors bring their experiences with similar decisions in other companies to bear on the current decision (Davis, 1996). Researchers have found support for this idea in interviews conducted with chief executive officers (CEOs), who noted that sitting on other firms' boards provides valuable first-hand information that executives then use in their own firms' decisions (Useem, 1984; Lorsch and Maclver (1989: 27). Evidence showing that networks other than board interlocks influence firms' decisions suggests this is a general network phenomenon (e.g., Galaskiewicz and Wasserman, 1989; Mizruchi, 1992; Davis and Greve, 1997) and is not limited to the interlock context. In general, networks enable forums for discussion, direct attention to new practices, and facilitate the transmission of information and normative pressures for firms to engage in certain activities.Networks are considered a potential source of learning (e.g., Levitt and March, 1988;Powell, 1990;Uzzi, 1996), facilitating learning by promoting efficient skill transfer among firms (Hamel, 1991) or by producing novel syntheses of existing information (Powell, Koput, and Smith-Doerr, 1996; Stuart and Podolny, 1997). Other positive effects of networks come from studies documenting the power of networks to affect outcomes like survival (Uzzi, 1996), growth (Podolny, Stuart, and Hannan, 1996), the likelihood of being taken over by another firm (Palmer et al., 1995), and the time it takes a division to get a product to market (Hansen, 1999). Thus, networks have been shown to affect firms' decisions, but it is unclear if they affect the quality of these decisions. Depending on the variety of information available, firms in some network structures may make better decisions than firms in other network structures.One important attribute of network structure that can affect decision quality is partners' heterogeneity. Firms in networks composed of partners with heterogeneous experiences should be in a better position to benefit from the variety of partners' experiences, and this benefit should be reflected in higher-quality decisions. Network partners' heterogeneity provides firms with more diverse samples of experience from which to learn. For example, if a firm is trying to determine what strategies work well in a given situation, it might...

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In this paper, we explore how a firm's reputation affects both the reaction of the market to that firm's product defects, as well as the firm's learning response. In contrast to a variety of arguments set out by information economists and market sociologists claiming that reputation serves as an organizational asset, we explore the possibility that reputation can be an organizational liability. We propose that a good reputation is less advantageous than a poor reputation in absorbing the impact of product defects, and thus high reputation firms are more likely to be punished by the market. We also propose, however, that this liability is transformed into a future asset by providing high reputation firms with more incentives to learn from these mistakes, and thus reduce their subsequent defect rate. Low reputation firms are also incented to learn, which means that moderate-reputation firms are likely to have the greatest problems learning from these defects. We empirically test these propositions using data on product recalls in the U.S. automobile industry from 1975 to 1999, and find support for predicted relationships. High reputation firms are punished more than low reputation firms, and learning from product recalls has an inverted U-shaped relationship with firm reputation. We conclude with a discussion of the implications of these results for learning and organizational status/reputation theories.

We would like to thank Ozgecan Kocak for help with data collection and comments on earlier versions of this paper. Thank you also to Glenn Carroll,

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