China's social capital and financial performance of private enterprises

Abstract

PurposeThis study aims to investigate the effects of social capital (defined as networks) on the performance of Chinese private enterprises.Design/methodology/approachThe paper employ an econometric model to test relationships between social capital and firm performance, using a sample of private enterprises in a survey in China in 2000.FindingsThe analysis suggests two findings. First, memberships in various organizations do not appear to be significant in affecting the performance of Chinese private enterprises. Second, short‐time investment in, and the flow of, social capital are significant determinants of enterprise performance.Research limitations/implicationsThe study examines only the effects of the short‐time investment in social capital. Further research is suggested to examine the effects of long‐term investments in social capital, the relationship between short‐time investment and long‐time investment in social capital, and the network as a whole, including informal networks.Originality/valueThe paper uses the survey data in China to test Krishna's hypothesis which suggests that short‐term investments can play a positive role in the financial performance of firms.