The Network Effect of Social Capital in Family Business

Topic: Enterprise
Words: 1378 Pages: 5


Many industrialized nations like the United States, Germany, France, United Kingdom and many others have a large percentage of their GDP, tax revenues, and labor from family-owned businesses. Perhaps this explains why recent decades have seen a growing body of research on the family business and social capital field. It is essential to comprehend the historical and current study of social capital in family business studies in this context. Such an endeavor would allow academics to validate the network effect of social capital on family businesses, which has hitherto gone unnoticed. More significantly, it would help determine new approaches for conceptualizing and investigating social capital inside family businesses. Accordingly, this literature review focuses on achieving two primary objectives. Thus, in addition to giving perspectives into current studies and concepts on the function of social capital in family businesses, this literature discusses present research limitations and future objectives for social capital research in family businesses.

Conceptualizing Social Capital

Family capital is a product of human, social, and financial assets. Social capital, more than the other two, separates family firms from non-family enterprises. Family enterprises may hire various forms of capital, but this is not the case with social capital as it resides inside the family tie (Dubos, 2017). According to Yu and Cai (2017), social capital is the total resources amassed by a business due to its long-term network of contacts with other enterprises. When it comes to networking, scholars concentrate on social capital. Dubos (2017) attributes this to the fact that it is the primary source of new corporate assets. To this end, it is plausible to argue that owners of successful enterprises spend more time socializing than owners of underperforming businesses.

Social capital is a network of relationships with economic rewards such as prospects, assets, and appreciation. Likewise, social capital portrays outcomes like the economic and monetary profit derived from an entity’s ties or interactions with others (Cihon & Mattaini, 2020). In this context, family social capital refers to the complementary social network that exists among family members, consumers, and the community. Nonetheless, evidence has shown that social capital is among the least physical and least transferable resources a business may have (Saxena et al., 2019, p.100). The mechanisms through which resources are controlled are poorly defined and should be investigated extensively.

Literature Review

The methodologies used by researchers in the family business and social capital field vary considerably. Herrero’s (2018) method sought to evaluate the influence of several forms of bonding social capital on productivity. According to the researcher, “bonding social capital is created when relationships between individuals are intense and characterized by commitment, trust, shared vision, and goals” (Herrero, 2018, p.8). To this end, the researchers performed an empirical investigation of 400 enterprises. They discovered that family social capital (FSC) is so distinctive and beneficial that non-family enterprises can merely try to recreate it poorly (Herrero, 2018). The study demonstrated, in particular, that FSC and bonding social capital of family enterprises increase company efficiency. The research attributed this result to the fact that tacit information is more readily accessed and communicated in households with familial links than without familial links (Herrero, 2018, p.19). Additionally, the researchers discovered that tacit information is more easily communicated via unofficial interactions, and close relatives routinely engage informally, during dinners or gatherings, or perhaps during everyday routines (Herrero, 2018). These findings are critical in helping to understand the network effect of social capital on family businesses.

The majority of existing literature treats bonding social capital and family social capital as the same, which can be confusing. In this regard, another strength of the study is that it distinguishes between these concepts and, in this way, enables researchers to separate social capital resources associated with each. The only limitation of the study is that it relies on information provided by single respondents. Although the researchers emphasize that their approach has high validity and reliability, they acknowledge the possibility of bias from the respondents. Therefore, the findings cannot be generalized since individual feedback is often affected by personal, social, and environmental factors—for example, the relationship between the respondent and other family members involved with the business.

Agbim (2019) used a different approach, conducting a study to examine the influence of social networking on family companies’ economic and non-economic success. The researcher examined 55 peer-reviewed journal publications. According to the findings, the effort and resources needed to establish social capital via social networking must be invested in order to maintain the gained capital (Agbim, 2019). This relationship involved entrepreneurial interactions with stakeholders and customers. Further, the study showed that social networking sites such as Facebook, LinkedIn, Twitter, Instagram, and others enabled family businesses owners to create very strong social, business, and personal ties (Agbim, 2019). Interactions through popular networking sites. The study also found that social networking sites promote collaboration with business partners and open doors to new economic prospects (Agbim, 2019). To put it another way, they use social media to reach out to additional consumers and clients for the family company. Accordingly, the study shows that social capital enhances firms’ capacity to acquire assets to boost their productivity and efficiency.

Compared to other studies, this study is unique in that it is among the few that have examined the connection between social media use and the performance of family firms. In this way, it provides new findings that are much needed in the field. Conversely, the study is limited to social networking sites based on human and social aspects. In other terms, the study fails to adequately address the economic effects these sites have on the family business. Instead, this is addressed cumulatively through assumptions such as increased customer interaction, improved customer feedback, increased profit margins, and expanded customer size. Unfortunately, there are no figures or data such as sales percentage to back these claims. In this way, it is safe to assume that while social capital positively affects family business, it has little to no economic impact.

Other studies have consistently linked family enterprises’ exceptional success to their collective objective, similar language, and deep, durable ties that close relatives frequently share. For example, in one such study, researchers examined how a mix of internal social capital and participatory leadership capacity might help family enterprises perform better on the global scene (Tasavori et al., 2018). According to their results, participatory leadership influences the association between international business efficiency and internal social capital only if diverse dimensions of family business welfare are considered. Particularly, the research reveals that neither participatory governance nor internal social capital enhances foreign sales percentages. These results confirm past assertions that family businesses may prioritize non-financial objectives.

The study above was conducted in Turkey, which is an emerging economy. This provides it with its biggest strength and likewise weakness. It is worth noting that most studies on family business and social capital are set in the context of developed economies. Although many studies do not explicitly highlight this, inferences can be made from the methodology, for instance, participants or type of companies investigated. In this view, findings outside these economies are desperately needed, and this study provides a good starting point. At the same time, the study may not be applied in broader societal settings since it was limited to one emerging economy. Future researchers should consider conducting further studies in different countries, including those from underdeveloped regions such as Africa.


In most modern economic models, interactions and networking serve a more prominent role. Strategic benefit is often found in the ability to nurture and preserve a company’s relational richness which existing literature defines as social capital. Overall, social capital research offers important tools for understanding how organizations create and sustain ties. A number of important themes permeate this work. Essentially, wealth creation is entrenched in a social setting, and social capital is pivotal in company success and sustainability. Likewise, social capital is the most immaterial than the other capital types (physical and human). More importantly, a major insight of the social capital research is that this kind of capital is neither totally substitutable nor transferred effortlessly. Lastly, companies often acquire social capital throughout tenure. Regarding previously constituted family enterprises, a fundamental duty is transferring the precious resources contained inside this network to the next generation.


Agbim, K.C. (2019). Social Networking and the Family Business Performance: A Conceptual Consideration. Journal of Entrepreneurship, Management and Innovation, 15(1):83-122.

Cihon, T. M., & Mattaini, M. A. (Eds.). (2020). Behavior science perspectives on culture and community. Springer.

Dubos, R. (2017). Social capital: Theory and research. Routledge.

Herrero, I. (2018). How familial is family social capital? Analyzing bonding social capital in family and non-family firms. Family Business Review, 31(4), 441-459.

Saxena, A. A., Bacouel-Jentjens, S., Sepehri, M., & Arora, A. (2019). Sustainable Innovation: Trends in Marketing and Management. Palgrave Pivot.

Tasavori, M., Zaefarian, R., & Eng, T. Y. (2018). Internal social capital and international firm performance in emerging market family firms: The mediating role of participative governance. International Small Business Journal, 36(8), 887-910.

Yu, J., & Cai, X. (2017). The Influence of intergenerational succession of family business on its performance—Taking enterprise innovation as a mediating variable. American Journal of Industrial and Business Management, 7(6), 798-815.

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