The relations between social capital and growth of innovative early stage firms: a contextual approach

The concept of social capital, widely acknowledged as the present and potential value that ensues from the social relations of individuals and social entities (Nahapiet and Ghoshal, 1998), is increasingly used in entrepreneurship studies to explain the growth (Maurer et al., 2011; Partanen et al., 2008; Pirolo and Presutti, 2010; Prashantham and Dhanaraj, 2010) of established firms and innovative young enterprises (Anderson et al., 2007; Maurer and Ebers, 2006; Stam et al., 2014). However, empirical findings to date differ and are even contradictory. According to Stam et al. (2014) and Gedajlovic et al. (2013), the main explanation lies in the absence of contextual, organisational, temporal and institutional variables in previous studies. The authors suggest, first, that organisations are too different to be able to reach a consensus on a notion that is ‘extremely difficult' to evaluate (Gedajlovic et al., 2013). Secondly, social capital is generally represented in an atemporal way, although several studies have shown that its nature and role evolve in line with the development process (Partanen et al., 2008), the business (Prashantham and Dhanaraj, 2010) or the individual (Cao et al., 2012). Finally, as Martinez and Aldrich (2011) suggest, the context, especially the institutional context in which the link between the company's social capital and growth develops, plays a key role. Our study adopts this contextual perspective of social capital. The aim of the present study is to examine the role of social capital on growth. To this end, we analyse the perceived utility of resources received from the networks of innovative small and medium-sized enterprises (SME) entrepreneurs (‘organisational context') during the first six years of existence (‘temporal context'), selecting firms that received some form of public support from the French Nord-Pas-de-Calais region (‘institutional context'). Our study differentiates between internal social capital (ISC) and external social capital (ESC) (Adler and Kwon, 2002) which is better adapted to a study on innovative young enterprises (Cao et al., 2012; Cuevas-Rodriguez et al., 2014; Davidsson and Honig, 2003; Debrulle et al., 2014; Yli-Renko et al., 2002). Our hypotheses aim to provide elements of contextual responses to the entrepreneurial debate on the role of social capital in the growth of innovative young firms. Thus, we begin by analysing whether there is a significant link between ISC and ESC and the growth of innovative enterprises in the company's early years. We then test the moderating role of incubators and clusters – as institutional variables – on the link between the social capital and growth of a young enterprise. Two distinct groups of French firms from the Nord-Pas de Calais region were used in this study: in the first group, the firms had been hosted by an incubator, while in the second group, they had received public assistance in the form of advice or subsidies. Our findings confirm that ESC has a positive role on growth in the context of innovative young firms, contrary to ISC. We point to the existence of a potential threshold effect linked to the size of the firm in terms of number of employees, beyond which ISC impacts on innovation and ultimately on growth. Finally, our findings do not support the notion that firms which have passed through an incubator have a greater level of ESC, subsequently ensuring better growth. The chapter begins by defining the notion of social capital – more specifically, internal and ESC – through the lens of specific organisational, temporal and institutional contexts. The study hypotheses that we test are drawn from our review of the literature. We then describe the research method used and the analytical framework adopted. Finally, we present and discuss our findings, and make recommendations together with possible avenues for future research.