This paper examines the relationship between a firm's network of relations and its innovation output. It develops a theoretical framework that links three aspects of a firm's ego network—direct ties, indirect ties, and structural holes (disconnections between a firm's partners)—to the firm's subsequent innovation output. The study posits that direct and indirect ties both have a positive impact on innovation, but the impact of indirect ties is moderated by the number of a firm's direct ties. Structural holes are proposed to have both positive and negative influences on subsequent innovation. Results from a longitudinal study of firms in the international chemicals industry indicate support for the predictions on direct and indirect ties, but in the interfirm collaboration network, increasing structural holes has a negative effect on innovation. The study suggests that the optimal structure of interfirm networks depends on the objectives of the network members. The paper discusses the role of network structure in innovation, highlighting the importance of direct and indirect ties, as well as structural holes. It argues that direct ties provide resource-sharing and knowledge-spillover benefits, while indirect ties can provide access to knowledge spillovers. Structural holes can enhance innovation by providing access to diverse information but may also lead to negative outcomes if not managed properly. The study uses a longitudinal dataset of 97 leading firms in the chemicals industry to test these hypotheses. The results support the predictions that direct ties and indirect ties positively influence innovation, while structural holes have a negative effect. The study also highlights the importance of considering the interplay between direct and indirect ties in designing effective and efficient networks.This paper examines the relationship between a firm's network of relations and its innovation output. It develops a theoretical framework that links three aspects of a firm's ego network—direct ties, indirect ties, and structural holes (disconnections between a firm's partners)—to the firm's subsequent innovation output. The study posits that direct and indirect ties both have a positive impact on innovation, but the impact of indirect ties is moderated by the number of a firm's direct ties. Structural holes are proposed to have both positive and negative influences on subsequent innovation. Results from a longitudinal study of firms in the international chemicals industry indicate support for the predictions on direct and indirect ties, but in the interfirm collaboration network, increasing structural holes has a negative effect on innovation. The study suggests that the optimal structure of interfirm networks depends on the objectives of the network members. The paper discusses the role of network structure in innovation, highlighting the importance of direct and indirect ties, as well as structural holes. It argues that direct ties provide resource-sharing and knowledge-spillover benefits, while indirect ties can provide access to knowledge spillovers. Structural holes can enhance innovation by providing access to diverse information but may also lead to negative outcomes if not managed properly. The study uses a longitudinal dataset of 97 leading firms in the chemicals industry to test these hypotheses. The results support the predictions that direct ties and indirect ties positively influence innovation, while structural holes have a negative effect. The study also highlights the importance of considering the interplay between direct and indirect ties in designing effective and efficient networks.