Opening the black box of small-firm networks: governance mechanisms and their impact on social capital

Abstract

The literature on business cooperation and small-firm networks (SFNs) is silent regarding the effects of governance on relational variables such as entrepreneurs' social capital. Based on this assumption, we analysed how the governance mechanisms of SFNs influence the social capital of participant entrepreneurs. The research was based on a survey involving 212 firms from 49 different Brazilian SFNs. Results show that governance mechanisms of SFNs influence both the individual dimensions of the entrepreneurs' social capital (structural, relational and cognitive) and the aggregated variable. Centralisation of decision making is the main governance mechanism that negatively influences social capital. Our paper contributes to theory by showing how the design of governance mechanisms in SFNs affects social relations and the entrepreneurs' social capital. The study also provides network managers with practical insights on how to govern SFNs in order to make the cooperation effective and avoid negative effects on members' social capital.