Effect of Social Capital on Firm Performance: An Empirical Study of Small Enterprises in Sri Lanka
Keywords:Sri Lanka, Social Capital, Small Enterprises, Firm Performance
The purpose of this study is to examine the impact of social capital on the performance of Small Enterprises (SEs) in an emerging economy, Sri Lanka. The study adopts a survey design and cross-sectional data collected by administering 200 questionnaires conducting face to face interviews. The social capital was measured by three dimensions namely, structural, relational, and conative social capital. The data were analyzed using Partial Least Squares-Structural Equation Modelling. The results show that structural and cognitive social capital had a positive significant impact on the performance of SEs while relational social capital had demonstrated a negative statistically significant impact on the performance of SEs. This implies that the managers of SEs emphasize the social capital as a means to a source of finance and resources and access to business and market information by maintaining close ties with the stakeholders to achieve a competitive advantage. The findings will be useful for the owners/managers of SEs who should share their knowledge, opportunities, and resources with their suppliers, customers as well as employees of the organization such that they should try to share their goals and achieve success together with parties who are related and interested in the business.
Abban, R., Omta, S.W.F., Aheto, J. B. K. & Scholten, V. E. (2013). “Connecting the dots: A multiple case study of the network relationships of small and medium-sized enterprises (SMEs) in the non-traditional agricultural export (NTAE) sector of Ghana”, African Journal of Economic and Management Studies, 4(1), 74 - 94. https://doi.org/10.1108/20400701311303168
Adler, P. S., & Kwon, S. W. (2002). Social capital: Prospects for a new concept. The Academy of Management Review, 27(1), 17. https://doi.org/10.5465/amr.2002.5922314
Agyapong, F.O., Agyapong, A., Poku, K. (2017). Nexus between social capital and performance of micro and small firms in an emerging economy: the mediating role of activities. Int. J. Hosp. Manag. 51, 42–55. https://doi.org/10.1080/23311975.2017.1309784
Aladwani, A.M. (2002). An integrated performance model of information systems projects. J. Manag. Inf. Syst., 19 (1), 185-210. https://doi.org/10.1080/07421222.2002.11045709
Arregle, J., Michael, A., Hitt, D., Sirmon, G., & Philippe, V. (2007). "The development of organizational social capital: Attributes of family firms." Journal of management studies, 44(1), 73-95. https://doi.org/10.1111/j.1467-6486.2007.00665.x
Aslam, M.M.H., Shahzad, K., Syed, A.R., & Ramish, A. (2013). Social Capital and Knowledge Sharing as Determinants of Academic Performance. Journal of Behavioral and Applied Management.: https://www.researchgate.net/publication/260594403
Babaei, H., Gill, S.S., & Ahmad, N. (2012). Bonding, bridging and linking social capital and psychological empowerment among squatter settlements in Tehran, Iran. Journal of Basic and Applied Scientific Research. (JBASR), 2(2), 109-115.
Batjargal, B. (2003). Social capital and entrepreneurial performance in Russia: a longitudinal study. Organ. Stud. 24 (4), 535–556. ttps://doi.org/10.1177/0170840603024004002
Batjargal, B. (2005). "Entrepreneurial versatility, resources and firm performance in Russia: A panel study". International Journal of Entrepreneurship and Innovation Management. (5), 3/4, 284-297. https://doi.org/10.1504/IJEIM.2005.006530
Bhagavatula, S., Elfring, T., van Tilburg, A., & Van de Bunt, G.G. (2010). How social and human capital influence opportunity recognition and resource mobilization in India's handloom industry. J. Bus. Ventur. 25, 245–260. https://doi.org/10.1016/j.jbusvent.2008.10.006
Bhagavatula, S. (2009). Weaving social networks performance of small rural firms in India as an outcome of entrepreneurs’ social and human capital. PhD Dissertation, Visakhapatnam University, India.
Bourdieu, P. (1983). Forms of capital. In J. C. Richards (Ed.), Handbook of theory and research for the sociology of education, New York, NY: Greenwood Press, 46–59.
Bouzdine, T., & Lorgnier, M. (2004). The role of social capital within business networks: analysis of structural and relational arguments. Fifth European Conference on Organisational Knowledge, learning and Capabilities. Innsbruck, Austria.
Bradley, S.W., McMullen, J.S., Artz, K., & Simiyu, E.M. (2012). Capital is not enough: innovation in developing economies. J. Manag. Stud. 49 (4), 684–717. https://doi.org/10.1111/j.1467-6486.2012.01043.x
Brink, T. (2011). What connections in networks of private entrepreneurs are related to growth? J. Depopulation Rural Dev. Stud. 11, 57–82.
Burt, R.S. (2000). “The network structure of social capital”. Research in Organizational Behavior, 22, 345 - 423. https://doi.org/10.1016/S0191-3085(00)22009-1
Cantner, U., & Stuetzer, M. (2010). The use and effect of social capital in new venture creation-Solo Entrepreneurs vs. New Venture Teams. Jena Econ. Res. Pap.
Celestini, J., Gavronski, & Kaynak, H. (2013). The relationship between social capital and operational performance. https://www.semanticscholar.org/paper/The-relationship-between-social-capital-and-Celestini-Gavronski/dc96d574ad405a2b2cc12509cf5843bb1865b8a3
Chang, K., Wong, J., Li, Y., Lin, Y., & Chen, H. (2011a). External social capital and information systems development team flexibility. Inf. Softw. Technol. 53, 592–600. https://doi.org/10.1016/j.infsof.2011.01.007
Chow, W. S., & Chan, L. S. (2008). “Social network, social trust and shared goals in organizational knowledge sharing”. Information & Management, 45(7), 458 - 465. https://doi.org/10.1016/j.im.2008.06.007
Clarke, R., Chandra, R., & Machado, M. (2016). SMEs and social capital: exploring the Brazilian context. Eur. Bus. Rev. 28 (1), 2–20. https://doi.org/10.1108/EBR-03-2013-0065
Coleman, & James S. (1990). Foundations of Social Theory (Harvard University Press, Cambridge, MA).
Coleman, J. S. (1988). Social capital in the creation of human capital. The American Journal of Sociology, 94(Supplement: Organizations and Institutions: Sociological and Economic Approaches to the Analysis of Structure), S95–S120. https://doi.org/10.1086/228943
Coleman, J. S. (1990). Foundations of social theory. Cambridge, MA: Harvard University Press.
Dai, W.D., Mao, Z.E., Zhao, X.R., & Mattila, A.S. (2015). How does social capital influence the hospitality firm's financial performance? The moderating role of entrepreneurial activities. Int. J. Hosp. Manag. 51, 42–55. https://doi.org/10.1016/j.ijhm.2015.08.011
Fafchamps, M., & Minten, B. (2002). Returns to social network capital among traders. Oxf. Econ. Pap. 54, 173. https://doi.org/10.1093/oep/54.2.173
Felicio, J.A., Couto, E., & Caiado, J. (2014). Human capital, social capital and organizational performance. Manag. Decis. 52 (2), 350–364. https://doi.org/10.1108/MD-04-2013-0260
Florin, J., Lubatkin, M., & Schulze, W. (2003). A social capital model of high-growth ventures. Academy of Management Journal, 46, 374–384. https://doi.org/10.2307/30040630.
Geletkanycz, M.A, & Hambrick, D.C. (1997). The external ties of top executives: Implications for strategic choice and performance. Administrative Science Quarterly 42, 654–681. https://doi.org/10.2307/2393653
Granovetter, M. (1973). The strength of weak ties. American Journal of Sociology, 78(6). https://doi.org/10.1086/225469
Granovetter, M. (1983). The strength of weak ties: A network theory revisited. Sociological theory, 201-233. https://doi.org/10.2307/202051
Hair, J.F., Ringle, C.M., Sarstedt, M. (2011). PLS-SEM: Indeed, a silver bullet. Journal of Marketing theory and Practice, 19(2), 139-152. https://doi.org/10.2753/MTP1069-6679190202
Hitt M. A., Uklee, H, & Yucel, E. (2002). The importance of social capital to the management of multinational enterprises: Relational networks among Asian and Western firms. Asia Pacific Journal of Management, 19, 353-372. https://doi.org/10.1023/A:1016247920461
Jones, G. R., & George, J. M. (1998). The experience and evolution of trust: Implications for cooperation and teamwork. Academy of Management Review, 23, 531-546. https://doi.org/10.5465/amr.1998.926625
Leana, C. R., & Pil, F. K. (2006). Social capital and organizational performance: Evidence from urban public schools. Organization Science, 17, 353–366. https://doi.org/10.1287/orsc.1060.0191.
Kipchirchir, E. (2014). The influence of social capital on the performance if SMEs in Nairobi County, Kenya. Unpublished MBA Thesis. University of Nairobi.
Kline, B. R. (2011). Principles and Practice of Structural Equation Modeling. Third Edition, The Guilford Press, New York.
Le Van, C., Nguyen, A.N., Nguyen, N.M., & Simioni, M. (2018). Growth strategy with social capital, human capital and physical capital theory and evidence: The case of Vietnam. Journal of Public Economic Theory, 20(5), 768-787. https://doi.org/10.1111/jpet.12305
Mark, B. C., William , T. H., & James, B. M. (2009). Critizenship Behavoir and the creation of social capital in Organization. Academy of Management Review,27 (4).
Misztal, B. (1996). Trust in modern societies. Cambridge: Polity Press.
Mishira, A. K. (1996). Organizational responses to crisis: the centrality of trust. In: Kramer, R. M., & Tyler, T. Trust in Organizations: frontiers of theory and research. Newbury Park: Sage, 261-287. https://doi.org/10.4135/9781452243610.n13
Muniady, R. A., Mamun, A. A., Mohamad, M. R., Permarupan, P. Y., & Zainol, N. R. B. (2015). The Effect of cognitive and relational social capital on structural social capital and micro-enterprise performance. SAGE Open, 5(4), 1-9. http://doi.org/10.1177/2158244015611187.
Nahapiet, J. & Ghoshal, S. (1998). “Social capital, intellectual capital, and the organizational advantage”. Academy of Management Review, 23(2), 242 - 266. https://doi.org/10.5465/amr.1998.533225
Ndofor, H.A., & Priem, R. (2011). Immigrant entrepreneurs, the ethnic enclave strategy, and venture performance. J. Manag. 37, 790–818. https://doi.org/10.1177/0149206309345020
Okello, O.R. (2017). The effect of social capital on the growth of medium enterprises in Kenya. Dissertation. Retrieved: http://erepo.usiu.ac.ke/handle/11732/3458
Ozigi,O. (2017). Social capital and financial performance of small and medium scale enterprises. Journal of Advanced Research in Business and Management Studies 10(1), 18-27.
Patel, P.C., & Terjesen, S. (2011). Complementary effects of network range and tie strength in enhancing transnational venture performance. Strateg. Entrepren. J. 5, 58–80. https://doi.org/10.1002/sej.107
Pearson, A., Carr, J. C., & Shaw, J. C. (2008). Toward a theory of familiness: A social capital perspective. Entrepreneurship Theory and Practice, 32, 949–969. https://doi.org/10.1111/etap.2008.32.issue-6. https://doi.org/10.1111/j.1540-6520.2008.00265.x
Pratono, A.H. (2018). From social network to firm performance: the mediating effect of trust, selling capability and pricing capability. Manag. Res. Rev. 41. https://doi.org/10.1108/MRR-03-2017-0080
Premaratne, S. P. (2002). Entrepreneurial networks and small business development: The Case of Sri Lanka. PhD Dissertation, Eindhoven: Eindhoven University of Technology.
Priyanath, H. M. S., & Premarathne, S. P. (2015). Effect of social capital on transaction cost: A multiple case study of small enterprises in Sri Lanka. International Journal of Arts and Commerce, 4(4), 127–138.
Putnam, R. D. (1995). ‘Bowling Alone: America’s Declining Social Capital’. Journal of Democracy 6(1), 65-78. https://doi.org/10.1353/jod.1995.0002
Rooks, R., Szirmai, A., & Sserwanga, A. (2009). The interplay of Human and social capital in entrepreneurship in developing countries (Research Paper N0.). UNU-WIDER, World Institute for Development Economics Research, United Nations University.
Soesanto, H. & Setiadi. (2017). Social capital dimensions in SMS manufacturing firms in central Java: Do They Matter? International Journal of Civil Engineering and Technology, 8(11), 1059–1069.
Stam, W., Arzlanian, S., & Elfring, T. (2014). Social capital of entrepreneurs and small firm performance: a meta-analysis of contextual and methodological moderators. J. Bus. Ventur, 29, 152–173. https://doi.org/10.1016/j.jbusvent.2013.01.002
Stone, W. (2001). Measuring social capital: towards a theoretically informed measurement framework for researching social capital in family and community life. Australian Institute of Family Studies, Melbourne Research Paper 24.
Tsai, W & Ghoshal, S. (1998). “Social capital and value creation: the role of intra firm networks”. The Academy of Management Journal, 41(4), 464 - 476. https://doi.org/10.2307/257085
Uzzi, B. (1996). “The sources and consequences of embeddedness for the economic performance of organization: the network effect”. American Sociological Review, 61, 674 -98. https://doi.org/10.2307/2096399
Weick, K. E. (1995). Sensemaking in organizations. Thousand Oaks, CA: SAGE
How to Cite
Copyright (c) 2020 Chandralatha Subasinghe Menike Lakse Mudiyanselage
This work is licensed under a Creative Commons Attribution 4.0 International License.
All articles published in Journal of Advances in Linguistics are licensed under a Creative Commons Attribution 4.0 International License.