Does Misery Love Company? Small Business Clustering and the Development of Psychological Capital

Abstract

In this study, we uncover a previously unacknowledged, yet highly significant source of performance advantage small businesses enjoy when they geographically cluster. Specifically, we argue that geographical clustering, and the associated increase in small business owners’ (SBOs) density of interactions with other SBOs, facilitate SBOs’ development of higher levels of positive psychological capital – a psychological resource whose significance for SBOs is uniquely acknowledged in the small business literature. We develop a set of hypotheses that explicate two specific paths – the ‘psychological sense of community path’ and the ‘informational path’ - through which increased density of interactions with other SBOs in a cluster leads to an SBO’s development of positive psychological capital, ultimately resulting in improved business performance. A structural equation model using survey data from the Aba Industrial Cluster in South East Nigeria provides strong support for all of our hypotheses. We discuss contributions, implications, and future research directions.