Innovation goes hand in hand with creativity and freedom. Yet, with separation of ownership and governance, too much freedom might invoke a host of issues associated with the agency problem. Monitoring has been cited as one of the universal cures against agency-related issues. Though effective in most cases, whether or not (and to what extent) monitoring is beneficial when tasks in question are highly innovative remains under-researched. We explore relationships between monitoring and innovative performance in the context of Swedish strategic small- and medium-size networks (SME networks).

Strategic SME networks consist of geographically proximate independent but related small- and medium-sized firms that cooperate to improve their innovative stature by means of multilateral intra-network technology and know-how exchange. As the degree of intra-network cooperation differs between the membership firms, and there is a possibility for free-riding, the networks often establish boards responsible for monitoring network innovative activities. Effects of such monitoring are the main focus of our study.