Nexus between Social Capital and Firm Performance: A Critical Literature Review and Research Agenda

Abstract

Given the importance of social capital in entrepreneurial success and growth, understanding how it can be exploited for optimal performance of the venture becomes critical. While the Government of Kenya, in recognition of the importance of entrepreneurial ventures in driving the economy, has put in both structural and affirmative measures towards enhancement of social capital and support for entrepreneurs, performance of these businesses still remains significantly low. The objectives of this study were to discuss the key constructs, variables and perspectives underlying the conceptualization of social capital and performance, and the arising controversies. Additionally, the study sought to discuss key methodological issues emerging from existing empirical studies, highlight critical knowledge gaps emanating from critical review of the literature and suggest a robust conceptual framework to guide a further study that would address the highlighted knowledge gaps. This study is anchored on the social capital theory which strongly considers social capital as an essential form of capital; one that no business can ignore and expect to survive or thrive. Other supporting theories include the contingency theory, economic theory, anthropological theory and innovation theories. Among the major gaps identified by this study include methodological gaps; most studies reviewed used descriptive design which is known to be the weakest in establishing cause and effect relationships. Some of the studies had very small sample sizes, known to potentially increase errors. Other gaps include contextual gaps; most of the studies considered established businesses where operations tend to be more standardized and innovation is adequately funded, unlike the low income areas where resources are often limited. Conceptual gaps were identified among studies that used direct relationships. For a broader and deeper appreciation of the relationship between social capital and performance, this study recommends conceptualization of a future study whereby the mediating effect of innovation and the moderating effect of operating business environment are considered, preferably within a low income area with less established / informal businesses within the service sector.