Social capital in entrepreneurial family businesses: the role of trust

Abstract

Purpose – The purpose of this paper is to provide empirical insights to understanding trust as a relational form of social capital, and its effects on entrepreneurial processes, in small- and medium-sized family businesses. Design/methodology/approach – This paper adopts a qualitative case-study approach, with data from fieldwork interviews, observations, and secondary sources analysed by using interpretative methods. Findings – Although multiple types of trust exist concurrently in small- and medium-sized Chinese family businesses, it is interpersonal trust on the basis of goodwill and competence that prevails, while contractual trust is weak and marginal. Three patterns of trusting relationships are identified, each of which has both positive and negative effects on entrepreneurship and innovation in family businesses. There is a potential “dark side” of trust, which incurs extra cost and commitment to small- and medium-sized family businesses in their entrepreneurial processes. Research limitations/implications – Future research with larger sample sizes is suggested to generalise the insights, by using both qualitative and quantitative methods. More empirical work is needed to further clarify the antecedents of trust as a social capital and the potential “dark side” of trust in small- and medium-sized family businesses, particularly across generations. Practical implications – Family business owner-managers should try to avoid relying on a single type of trust, which may incur extra costs to the entrepreneurial processes. They need to better understand why they trust certain actors in their business and social networks before assigning resources to specific business activities. Policy makers are suggested to recognise the “benefits” of the traditionally family-oriented values and that kinship-based trust is also a relational form of social capital and can produce entrepreneurial outcomes. Originality/value – The paper critically reviews existing literature on social capital, trust, entrepreneurship, and family business at their point of intersection and identifies gaps and oversights. Drawing on case studies from China, the paper explores different patterns in which trust develops in second-generation small- and medium-sized Chinese family businesses and their varying effects on entrepreneurship.