Social capital in entrepreneurial family businesses: the role of trust

Abstract

Purpose – The purpose of this paper is to provide empirical insights to understanding trust as a relational form of social capital, and its effects on entrepreneurial processes, in small- and medium-sized family businesses. Design/methodology/approach – This paper adopts a qualitative case-study approach, with data from fieldwork interviews, observations, and secondary sources analysed by using interpretative methods. Findings – Although multiple types of trust exist concurrently in small- and medium-sized Chinese family businesses, it is interpersonal trust on the basis of goodwill and competence that prevails, while contractual trust is weak and marginal. Three patterns of trusting relationships are identified, each of which has both positive and negative effects on entrepreneurship and innovation in family businesses. There is a potential “dark side” of trust, which incurs extra cost and commitment to small- and medium-sized family businesses in their entrepreneurial processes. Research limitations/implications – Future research with larger sample sizes is suggested to generalise the insights, by using both qualitative and quantitative methods. More empirical work is needed to further clarify the antecedents of trust as a social capital and the potential “dark side” of trust in small- and medium-sized family businesses, particularly across generations. Practical implications – Family business owner-managers should try to avoid relying on a single type of trust, which may incur extra costs to the entrepreneurial processes. They need to better understand why they trust certain actors in their business and social networks before assigning resources to specific business activities. Policy makers are suggested to recognise the “benefits” of the traditionally family-oriented values and that kinship-based trust is also a relational form of social capital and can produce entrepreneurial outcomes. Originality/value – The paper critically reviews existing literature on social capital, trust, entrepreneurship, and family business at their point of intersection and identifies gaps and oversights. Drawing on case studies from China, the paper explores different patterns in which trust develops in second-generation small- and medium-sized Chinese family businesses and their varying effects on entrepreneurship.

Investigating dynamic capabilities of family businesses in China: a social capital perspective

“…Pearson et al (2008) further examined the family capital via the lens of social capital and believed that social capital theory is particularly relevant to studies of the unique resources family businesses possess, since social capital reflects 'the character of social relationships within the organisation, realised through members' levels of collective goal orientation and shared trust' (Leana and Van Buren 1999, p.540). Nevertheless, notwithstanding the family business literature touching upon social capital (Nordstrom and Steier, 2015;Shi et al, 2015;Pearson et al, 2008), a fundamental question remains unexplored: Can social capital enable family firms to develop dynamic capabilities that are crucial to their survival and success in the dynamic environment? This research question is noteworthy not only because the majority of firms across economies are profoundly influenced by families (Konig et al, 2013), but also because family firms are embedded in a distinctive social system that prompts significant behavioural differences from non-family firms (Miller et al, 2010).…”

The Dark or Bright Side of Entrepreneurs' Social Capital: Effects on Creativity and Innovation

“…The high density of social networks can hinder the autonomy and creativity of individuals to the extent that it increases reconciliation (Eşki, 2010;Özdemir, 2007). Shi et al (2015) draw attention to the potential "dark side of trust" that requires extra cost and commitment in entrepreneurial processes. In the light of the studies dealing with the positive and negative consequences of social capital, this research focuses on the relationships between entrepreneurs' social capital levels, creative thinking dispositions and industrial property rights (innovation).…”

The Effect of Family Involvement on Innovation Outcomes: The Moderating Role of Board Social Capital

“…Family members typically possess strong internal and external social capital (Barroso‐Castro et al, 2016). Both are rooted in the families’ idiosyncratic values, goals, and networks (Sorenson, Goodpaster, Hedberg, and Yu, 2009), and are essential features of family firm operations (Shi, Shepherd, and Schmidts, 2015; Uhlaner, Matser, Berent‐Braun, and Flören, 2015). They facilitate information flows, knowledge creation (Nahapiet and Ghoshal, 1998), and creativity (Perry‐Smith and Mannucci, 2017), and determine the success of external partnerships (Ireland, Hitt, and Vaidyanath, 2002).…”