Institutional Polycentrism, Entrepreneurs' Social Networks, and New Venture Growth

Abstract

What is the interrelationship among formal institutions, social networks, and new venture growth? Drawing on the theory of institutional polycentrism and social network theory, we examine this question using data on 637 entrepreneurs from four different countries. We find the confluence of weak and inefficient formal institutions to be associated with a larger number of structural holes in entrepreneurial social networks. While the effect of this institutional order on the revenue growth of new ventures is negative, a network's structural holes have a positive effect on revenue growth. Furthermore, the positive effect of structural holes on revenue growth is stronger in an environment with a more adverse institutional order (i.e., weaker and more inefficient institutions). The contributions and implications of these findings are discussed.

Balancing Formality and Informality in Business Exchanges as a Duality: A Comparative Case Study of Returnee and Local Entrepreneurs in China

“…Zhang et al (2009) have shown that when the legal infrastructure for enforcing formal contracts is not effective, informal relationships such as guanxi play an indispensable and vital role in the successful operations of public-private partners in Chinese society. These findings have been further confirmed by Batjargal, Hitt, Tsui, Arregle, Webb, and Miller (2013). Their study revealed that entrepreneurs in weak and inefficient formal institutional contexts tend to use structural holes as a substitute for rules.…”

Revisiting the Antecedents of Social Entrepreneurial Intentions in Hong Kong

“…For example, social capital can contribute to attaining a high probability of success in crowdfunding (Zheng, Li, Wu, & Xu, 2014), which is an emerging financial source for social enterprises (Calic & Mosakowski, 2016). Accordingly, educators should assist students in developing social networks for public support for alleviating social problems (Mair & Marti, 2006) and in facing work-related stress in entrepreneurial ventures (Batjargal, Hitt, Tsui, Arregle, Webb, & Miller, 2013).…”

Down the Rabbit Hole: How Structural Holes in Entrepreneurs' Social Networks Impact Early Venture Growth

“…Structural holes have emerged as a source of unique resources for entrepreneurs, and have been related to venture performance, especially in the early stages of development (Aarstad, 2012;Batjargal et al, 2013;Rost, 2011;Sullivan & Ford, 2014;Cowan & Jonard, 2007).…”

“…Literature in this area suggests that institutional polycentrism -whereby a formal institution's rules and norms are created in multiple centres of decision-making -may act as a mediator between structural holes in a social network and a new venture's outcomes such as profitability, growth, and product development (Batjargal et al, 2013;Boettke & Coyne, 2009). Specifically, research in this area explores how these institutions affect the development of an entrepreneur's social networks and the subsequent impacts a new venture's outcomes.…”

“…With weak and inefficient institutions, an entrepreneur, especially in the early years of a venture's development, will spend time and resources dealing with these institutions, which reduces the likelihood of entrepreneurial success and increases opportunity costs (Batjargal et al, 2013). A young venture is especially vulnerable to weak economic institutions as much needed capital becomes difficult to access and obtain.…”