Social Capital and Firm Performance: The Impact of Technical Uncertainty

Abstract

In order to clarify the relationship between social capital and firm performance, this research extends previous research using business network data collected from emerging markets in electronics companies to explore three questions: (1) Is the relationship between social capital and firm performance a non-linear inverted U-shaped curve? (2) Is the relationship between social capital and firm performance affected by technical uncertainty? (3) How does technical uncertainty affect the optimal level of social capital? Our research suggests that the relationship between social capital and firm performance is an inverted U-shaped curve. When social capital begins to increase, firm performance increases until it reaches equilibrium, after which it begins to decrease with the increase of social capital. This shows that too much or too little social capital has a negative impact on firm performance, while moderate social capital can lead to the greatest firm performance in a company. Also, the higher the technical uncertainty, the greater positive effect social capital has on firm performance. Furthermore, higher levels of technical uncertainty push the equilibrium point for social capital higher. Therefore, the higher the levels of technical uncertainty companies face, the more companies may rely on the building of corporate networks to gain necessary resources and promote business development.

Keywords: Social Capital, Firm Performance, Technical Uncertainty

JEL Classification: G31