Academic journal article Entrepreneurship: Theory and Practice

Kinship in Entrepreneur Networks: Performance Effects of Resource Assembly in Africa

Academic journal article Entrepreneurship: Theory and Practice

Kinship in Entrepreneur Networks: Performance Effects of Resource Assembly in Africa

Article excerpt

We examine the relationship among structural social capital, resource assembly, and firm performance of entrepreneurs in Africa. We posit that social capital primarily composed of kinship or family ties helps the entrepreneur to raise resources, but it does so at a cost. Using data drawn from small firms in Kampala, Uganda, we explore how shared identity among the entrepreneur's social network moderates the relationship between social capital and outcomes. A large network contributed a higher quantity of resources raised, but at a higher cost when shared identity was high. We discuss the implications of these findings for the role of family ties and social capital in resource assembly, with an emphasis on developing economies.

Introduction

A prominent literature on family business addresses the formation, governance, and importance of family businesses in the global economy. Scholars have examined characteristics such as family involvement, control, and governance with respect to agency costs and benefits, among others (Chrisman, Chua, & Litz, 2004; Dyer, 2006; Fiegener, 2010; Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, & Moyano-Fuentes, 2007; Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001; O'Boyle, Pollack, & Rutherford, 2012). Scholars are beginning to examine social capital in family firms with respect to its creation (Arregle, Hitt, Sirmon, & Very, 2007; Khavul, Bruton, & Wood, 2009) and impact on firm performance (Dyer). Social capital and social networks facilitate the acquisition of resources (Kotha & George, 2012) that are utilized to exploit entrepreneurial opportunities (Baker & Nelson, 2005), and impact performance and value creation (George, 2005).

Social capital and networks are particularly important to small, family firms that tend to draw heavily on family or kinship ties for resource acquisition especially at the nascent firm formation phase (Arregle et al., 2007; Davidsson & Honig, 2003; Greve & Salaff, 2003; Khayesi & George, 2011; Maurer & Ebers, 2006). Defined loosely, kinship ties include relationships by blood and marriage (Peredo, 2003; Stewart, 2003), and comprise one's spouse, parents, children, and other relatives like siblings and in-laws (Kotha & George, 2012; Renzulli, Aldrich, & Moody, 2000). In African societies, kin relations are extensive and include nuclear as well as extended families (Khavul et al., 2009; Smith, 2009), numbering sometimes into hundreds or even the size of a tribe (Mbiti, 1969).

Despite increasing research on social capital, family firms, and entrepreneurship research in general, developing countries continue to receive little research attention in comparison to developed economies (Bruton, Ahlstrom, & Obloj, 2008; Khavul et al., 2009). Our study draws from literature on family firms, kinship, and social capital to examine the influence of family and kin-induced social capital on entrepreneurs' resource accumulation efforts in an under-researched context, that of a developing economy. Whereas the positive contribution of social capital and networks to resource acquisition is widely acknowledged, there is growing theoretical recognition of risks of social capital (Adler & Kwon, 2002)--for example, the cost of capital associated with raising resources from the social network (Uzzi, 1999; Uzzi & Gillespie, 2002), the hindrance of new information flowing into the network, and problems of free riding from network members (Portes & Sensenbrenner, 1993). This cost implies that maintaining a vibrant network that yields resources also requires investment of one's time, effort, and resources in meeting the demands of the network members. Such risks can be detrimental to small firms that rely heavily on family and kinship ties.

We examine the aggregate cost of raising resources, which includes the cost of social capital comprising interest paid on money that is borrowed (Uzzi, 1999; Uzzi & Gillespie, 2002), plus the cost of maintaining the network. …

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