Examining the Influence of Cultural and Social Capital on Entrepreneurial Risk-Taking and Venture Growth in Developing Economies

Abstract

In developing countries, where there are institutional voids like restricted access to loans and poor legal protection, entrepreneurs have to rely on informal systems to cope with venture risks and achieve growth. Although there is a consensus on the existence of these informal resources in the academic literature, there is a tendency in the current literature to confuse cultural orientations with social network systems in their effect on firms' evolution. This paper adopts a sequential explanatory mixed-method research design for studying active SME founders (N=312) in an emerging market setting. Hierarchical linear regression analysis of quantitative survey data was used together with thematic analysis of 14 qualitative follow-up case studies. The results show that cultural capital plays a crucial role as cognitive assurance, positively enhancing the risk-taking behavior of an entrepreneur (β= 0.44, Ƥ<0.001), through normalizing self-employment and overcoming fear of failing. Social capital with high levels of trust (bonding social capital - immediate family relations) plays an important relational role as a safety net in institutional voids, having a strong positive impact on venture survival (β= 0.51, Ƥ<0.001). However, dependence solely on family networks results in a locally embedded growth trap that has an inverse correlation with long-term scalability (β= -0.18, Ƥ< 0.05). In contrast, bridging social capital (weak, external industry relations) is identified as the key driver for multi-faceted business growth and scalability (β= 0.49, Ƥ< 0.001). The current study provides evidence of a dual stage growth framework wherein it is evident that even as cultural mindsets and close connections ensure that the business remains safe in its formative stages, external network formation is necessary for growth. Policymakers must devise solutions to assist small businesses in moving from kinship networks to industry networks.