The Influence of Social Capital on Entrepreneurial Behavior

Traditionally, the theory of entrepreneurship is associated with an individu- al’s employment choice and with innovation. In the last decade, however, soci- ologists and organization theorists have shown that social networks and embeddedness are also crucial factors in the decision whether to become entre- preneurs.2 In fact, entrepreneurial action does not take place in a vacuum; rather it is embedded in networks of social relationships. By observing and interacting with other individuals, entrepreneurs acquire information and skills, and learn how to find competent employees and inputs at affordable prices, obtain financial support, and find potential buyers.3 The en- vironment they live in and the relationships they develop influence their deci- sions and legitimize their activities. In fact, researchers have shown that when choosing in an ambiguous environment, individuals tend to base their decisions on social cues and that participation in social networks is a crucial element for entrepreneurs.4, 5 Throughout the entrepreneurial process, interactions are im- portant for existing and potential entrepreneurs and are usually referred to as the entrepreneur’s social capital. Saxenian has argued that much of the success of Silicon Valley is to be attributed to its social capital.6 Minniti, for example, describes the social environment of entrepreneurs analogously to Coleman’s definition of the ‘‘first form’’ of social capital, in which the latter is described as the ability of information to flow through a community and form the basis for action.7, 8 But what is social capital exactly? Coleman argues that social capital may take three forms. In addition to the first form cited here, social capital may consist of obligations and expectations that depend on the trustworthiness of the environment, or it may describe the existence of norms accompanied by possible sanctions. However, several other definitions exist. In some cases, for example, the expression social capital has been used to describe labor market connections and, in yet other cases, to describe the existence of good behaviors in a specific group.9, 10 Overall, a generally accepted definition of social capital does not exist, and the term is used to describe a variety of things. Different definitions are found in the literature depending on the disciplinary approach taken and even within the same discipline. As a result, some researchers have become critical of the concept since the variety of its meanings prevents a rigorous use of the notion.11 To some extent, the use of social capital as an umbrella construct that comprises multiple complex concepts, including trust, interfirm and social networks, culture, and social support has lost its focus and is leading to a paradoxical situation in which a concept that has been used to explain a variety of social phenomena can no longer be used to explain any without being criticized.12 Critically, social capital has been referred to as a concept ‘‘that means many things to many people,’’13 or, ironically, ‘‘a wonderfully elastic term.’’14 The question, as Adam and Roncˇevic ́ put it, is ‘‘[w]hether the concept of social capital is a fashionable (and short-lived) term proposed as a cure-all for the maladies affecting contemporary commu- nities, organizations, and societies as a whole or whether it has more long-term strategic—theoretical as well as applicable—meaning for sociology and other social science disciplines.’’15 Solving the debate about the real meaning of social capital is beyond the scope of this chapter. Our goal, instead, is to review briefly the literature on the subject and to assess how social capital (in its variety of meanings) has been used for, and has contributed to, our understanding of entrepreneurial behavior. The chapter is organized as follows: The following section reviews works on social capital from the sociology, political science, management, and economics literature. The successive one discusses the role played by social capital on entrepreneurial be- havior distinguishing between nascent and established entrepreneurs. Finally, we address the challenging issue of how to measure social capital, identify some gaps in the literature, and raise some suggestions for future research.