Between social capital and formal governance in farmer cooperatives: Evidence from China

Abstract

Although social capital has been regarded as valuable for organizations, some scholars have noticed that the effect of social capital on economic performance is nonlinear and depends on formal governance. This article examines the role of social capital and the interaction of social capital and formal governance in influencing the economic performance of farmer cooperatives. An empirical exploratory study is conducted based on a data set of 147 farmer cooperatives in China, and an ordinary least squares regression model is used to estimate the results. The results show that the stock of social capital can enhance the economic performance of farmer cooperatives and that social capital has a larger impact when there is stronger formal governance with regard to income distribution. Social capital and formal governance are therefore complementary. An improvement in some aspects of formal governance is favorable to the outcome of social capital. Cooperative practitioners need to consider the creation of both social capital and formal governance.