Academic journal article Entrepreneurship: Theory and Practice

Why Networks Enhance the Progress of New Venture Creation: The Influence of Social Capital and Cognition

Academic journal article Entrepreneurship: Theory and Practice

Why Networks Enhance the Progress of New Venture Creation: The Influence of Social Capital and Cognition

Article excerpt

Why does social capital influence the progress of new venture creation for some entrepreneurs more than others? Our investigation suggests that social capital is not enough; that the type of person involved in network relationships matters to new venture creation. We test the effects of the interplay of social capital and cognition on a sample of 269 entrepreneurs. Our results confirm that social networks and relational capital enhance levels of illusion of control, which is directly related to the progress of new venture creation. We find marginal support for the relationship between social capital and risk propensity.

Introduction

Entrepreneurship is a field of business that seeks to understand how opportunities to create something new are discovered or created by individuals who then use various means to exploit or develop them, and in doing so produce a wide range of outcomes (Baron & Shane, 2005). This perspective of entrepreneurship reflects the core of entrepreneurship research--the investigation into how and why opportunities are discovered and exploited. Entrepreneurship is significant on many levels as evidenced not only in public policy initiatives that encourage new business development but also within established organizations that actively encourage the development and pursuit of new opportunities. While the impact of entrepreneurship to economic progress is apparent, knowledge of the factors that encourage opportunity exploitation remains ambiguous. This ambiguity has spawned a vast theoretical and empirical literature that seeks to identify the antecedents to individual entrepreneurial behavior--seeking a model of new venture creation.

Research has pointed to the importance of networking and building social capital to the new venture creation process (e.g., Baron & Markman, 2003; DeCarolis & Saparito, 2006; Liao & Welsch, 2005; Ostgaard & Birley, 1996). In particular, it has been argued that new venture creation is the result of the interplay of entrepreneurs' social networks and cognitive biases. As the presence of entrepreneurial opportunities in a network increase, the odds of entrepreneurial behavior increase, but only if someone is inclined toward entrepreneurial behavior (Burt, 1992; DeCarolis & Saparito, 2006). Accordingly, DeCarolis and Saparito argued that cognitive biases may explain why social capital has a greater effect on the progress of new venture creation for some entrepreneurs but not others. Social cognitive theory (Bandura, 1986; Wood & Bandura, 1989) posits that social environments play an important role in shaping individuals' cognition, and ultimately, their behavior. This perspective appears to support Shane and Venkataraman's (2000, p. 218) view of entrepreneurship as "the nexus of two phenomena: the presence of lucrative opportunities and the presence of enterprising individuals." Thus, we examine how external (social capital) and internal factors (cognition) affect new venture creation and progression. We expect that individuals with the greatest social capital, coupled with the enhanced propensity to enterprise, will make the greatest progress in creating a new venture.

Drawing from DeCarolis and Saparito's (2006) work on the importance of social capital and cognition in explaining the exploitation of entrepreneurial opportunities, we develop and test a model of new venture creation that incorporates the influence of social capital and cognition on the progress of new venture creation. Accordingly, this paper makes several contributions to the entrepreneurship literature. First, we extend research on the progression of new venture creation by exploring the impact of social capital on individual cognition. Second, this paper helps to explain why social capital may encourage some individuals to start new ventures but not others. Third, we show how two specific types of social capital--social networks and relational capital--contribute to the progression of new venture creation. …

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