ENTREPRENEURSHIP: NO INDIVIDUALISTIC PROCESS. THE RELATIONSHIP BETWEEN SOCIAL CAPITAL AND NEW BUSINESS
EMERGENCE, MEDIATED BY OPPORTUNITY CONFIDENCE
Master’s thesis, Master Human Resource Management University of Groningen, Faculty of Economics and Business
June 14th, 2015
Nynke Ant Annema Student number: s1763660
Prinsesseweg 2E 9717 BH Groningen Phone: + 31 6 12558029 Email: na_annema@hotmail.com
Supervisor/ university D. S. de Geest
2 ENTREPRENEURSHIP: NO INDIVIDUALISTIC PROCESS. THE RELATIONSHIP
BETWEEN SOCIAL CAPITAL AND NEW BUSINESS EMERGENCE, MEDIATED BY OPPORTUNITY CONFIDENCE
ABSTRACT
Previous research shows that social capital plays an important role in new business emergence. However, little is known about what mediates the relationship between social capital and new business emergence. The purpose of this research is examining the mediating role of opportunity confidence in the relationship between social capital and new business emergence. Statistical analyses of the Panel Study of Entrepreneurial Dynamics 1 (PSED 1) reveal that social capital is positively associated with opportunity confidence. No evidence was found for the predicted positive relationship between social capital and new business emergence and for the predicted positive relationship between opportunity confidence and new business emergence. Furthermore, the mediation analysis provided no support for the expected mediating role of opportunity confidence in the relationship between social capital and new business emergence. Theoretical and practical implications, limitations and
suggestions for future research are discussed.
Keywords: entrepreneurship, social capital, opportunity confidence, PSED
3 ENTREPRENEURSHIP: NO INDIVIDUALISTIC PROCESS. THE RELATIONSHIP BETWEEN SOCIAL CAPITAL AND NEW BUSINESS
EMERGENCE, MEDIATED BY OPPORTUNITY CONFIDENCE Nascent entrepreneurs continually decide whether it is worth to stick at the new business ideas they have. They pursue opportunities that are valuable and abandon those that are likely to fail. They need to have confidence in the opportunities they pursue, because performing entrepreneurial activities is usually risky (Dimov, 2010). Namely, pursuing an idea that fails can lead to a loss of major financial and time investment (Dimov, 2010). It occurs often that a failing idea is being pursued. Forty percent of new businesses fail during the first two years that they exist (Small Business Administration, 1999). Therefore, it is important to gain insight in what variables lead to new business emergence (Van Gelderen, Thurik & Bosma, 2006). One of these factors is social capital, consisting of “the actual or potential values and benefits resulting from an individual’s own social interactions and networks” (Santarelli & Tran, 2013, p. 438). Research on entrepreneurship has shown that social capital contributes to successful new business emergence. Namely, empirical studies have revealed that individuals who are rich in social capital are more likely to become self- employed than individuals who are poor in social capital (Davidson & Honig, 2003; Kwon, Heflin & Ruef, 2013). Moreover, other empirical studies have discovered that social capital is beneficial as well for entrepreneurs of already established new businesses (Debrulle & Maes, 2013; Zhao & Aram, 1995). However, there are also studies that have not found a facilitating role of social capital in new business emergence, but these studies are scarce (Bates, 1994;
Littunen, 2000). Thus, the majority of the relevant studies has revealed that social capital is positively related to new business emergence.
4 In contrast, there is little knowledge about how social capital is related to new business emergence. Concerns have been raised about the knowledge we have on this (Light & Dana 2013). More specifically, limited empirical evidence exists concerning the process-view of social capital and new business emergence (Hoang & Antoncic, 2003). Previous research has already proven that the development of new businesses is critically dependent on the
entrepreneur’s confidence in pursuing venture opportunities (Dimov, 2010). This refers to opportunity confidence, which is the entrepreneur’s subjective judgement about the opportunity at hand (Dimov, 2010). Entrepreneurs need to have sufficient opportunity confidence in order to decide to stick to their business opportunities (Dimov, 2010). Social capital is likely to play a major role in the confidence entrepreneurs have in their business opportunities. First, social capital “gives entrepreneurs access to a variety of scarce resources”
(Santarelli & Tran, 2013, p. 438). Second, social capital facilitates the obtainment of intangible resources, such as competence and credibility (Bosma, Van Praag, Thurik, & De Wit, 2004; Brüderl & Preisendörfer, 1998). Third, since entrepreneurs are not able to
elaborate themselves on all the information they need for their decision-making process, they are dependent on their stakeholders, such as distributors, suppliers and customer organizations in acquiring the necessary information (Santarelli & Tran, 2013). Fourth, positive perceptions of network participation of entrepreneurs can enhance their business profits (Calabrese, Baum, & Silverman, 2000; Stuart, Hoang, & Hybels, 1999). Although entrepreneurial efforts are perceived as risky, the trust conferred through social capital reduces this uncertainty (Kim
& Kang, 2014). However, no empirical study to date has empirically assessed the
relationships among social capital, new business emergence and opportunity confidence in a combined way. This lack of literature is surprising, because it seems plausible that
opportunity confidence is an important mediator in the relationship between social capital and
5 new business emergence. Based on the previous four aspects related to how social capital facilitates new business emergence, opportunity confidence can be seen as an umbrella concept (Dimov, 2010) for these processes. The wide variety of benefits that social capital provides in new business emergence should enhance an entrepreneur’s opportunity
confidence. This overarching nature makes opportunity confidence the most critical mediator in the relationship between social capital and new business emergence. Dimov (2010) has shown that opportunity confidence mediates the positive relationship between human capital and new business emergence. Although this study did not take social capital into account, he has suggested that social capital can be important as well in the context of opportunity confidence and entrepreneurship. Furthermore, since the literature on entrepreneurship is rather fragmented, there is a need for a more unified view on entrepreneurship (Moroz &
Hindle, 2011).
The purpose of this research is examining the mediating role of opportunity confidence in the relationship between social capital and new business emergence. The contributions of this research are threefold. First, this study contributes to empirical
knowledge on what factors support new business emergence by using a process-view. Second, it presents opportunity confidence as an umbrella concept in the context of social capital and new business emergence, in response to the fragmented character of previous studies on entrepreneurship (Moroz & Hindle, 2011). Third, this study is part of the social approach in entrepreneurial research, which recognizes that entrepreneurial activities occur through social processes (Thornton, 1999).
This research report is organized as follows. Section two reviews literature and theories that relate to social capital, new business emergence and opportunity confidence.
Moreover, the hypotheses will be presented in this section. Section three elaborates on the
6 methodology of the study. In this section, the sample and procedure, measures and data
analysis will be discussed. Section four elaborates on the results of the statistical analysis and whether the hypotheses can be accepted. Section five contains the discussion. In this section, attention will be paid to a summary of the findings, implications, limitations, directions for future research and the conclusion.
THEORETICAL FRAMEWORK Social Capital and New Business Emergence
In this paper, the focus is on the early stages of new business emergence. The successful start-up of emerging ventures relies greatly on the presence of social capital (Arregle, Hitt, Sirmon & Very, 2007). Social capital can be defined as “the features of social life – networks, norms and trust – that enable participants to act together more effectively to pursue shared interests” (Putnam, 1995, p. 664-665). Social capital consists of the aspects of social structure that generate value and contribute to the actions of the individual within that social structure. In other words, social capital helps people in reaching their goals (Coleman, 1990). Brüderl and Preisendörfer (1998) argue that entrepreneurship takes place in a social environment. Nascent entrepreneurs cannot be considered as isolated independent decision makers, but as actors embedded in a social context with a variety of people. Previous empirical research shows that social capital makes becoming entrepreneurial more likely.
Kwon et al. (2013) for instance, have discovered that people in communities with a large degree of social trust are more likely to be entrepreneurs, than people in communities with a small degree of social trust. Further, Honig and Davidsson (2003) have shown that having friends or family in business and being encouraged by people in the entrepreneur’s social network are positively related to engaging in entrepreneurial activities. Besides these positive influences of social capital on becoming self-employed, social capital is as well beneficial for
7 entrepreneurs who have already established their business. Debrulle and Maes (2014) for instance, have demonstrated that weak ties (infrequent and not emotional contacts) and participation in business networks support entrepreneurs in acquiring external information that is relevant for their venture. Furthermore, social capital is related to business growth as Zhao and Aram (1995) have shown with their study among Chinese entrepreneurs. In their study, the frequent use of networks distinguished organizations with high growth from organizations with low growth. These empirical results can be explained by the fact that social capital facilitates the access to tangible business resources, such as financial capital and intangible business resources, such as credibility. Moreover, social capital enhances the
quality of these resources (Adler & Kwon, 2002; De Carolis, Litzky & Eddleston, 2009;
Thorpe, Holt, Macpherson & Pittaway, 2005). Kwon et al. (2013) add to this that social capital supports small entrepreneurs to be recognized and to establish a positive reputation. In summary, social capital and new business emergence seem to be connected, because social capital facilitates the access to a variety of resources that are needed for new business emergence.
Hypothesis 1. Social capital will be positively related to new business emergence.
Opportunity Confidence and New Business Emergence
Nascent entrepreneurs continuously make decisions related to venture opportunities. In some cases they stick to the opportunities they face and in other cases they abandon them (Shaver & Scott, 1991). Entrepreneurs want to pay a lot of attention to this process in order to make the right decisions, because new venture activities are usually risky (Dimov, 2010).
Decisive in this process is that entrepreneurs need to have opportunity confidence (Dimov, 2010). Opportunity confidence consists of two personal beliefs about the opportunities that entrepreneurs face. Namely, whether the opportunity is feasible (the opportunity feasibility
8 belief) and whether entrepreneurs have “the knowledge and skills to successfully establish the business” (start-up self-efficacy) (Dimov, 2010, p. 1227). Opportunity feasibility belief concerns perceptions towards the extent in which important milestones are achievable.
Examples of these milestones are attracting customers, finding skilled employees and
acquiring money and physical capital. When entrepreneurs assume that these resources are not achievable, they will be more likely to discontinue the efforts needed for new business start- up (Eckhardt & Shane, 2003). More generally, the perceived feasibility of an activity is a critical predictor of intentions to perform that activity (Ajzen, 1991). Besides evaluating the feasibility of the opportunity, entrepreneurs also evaluate their ability to start a business. This evaluation is called start-up self-efficacy, a concept that is derived from self-efficacy in general (Dimov, 2010). Self-efficacy is originally described as a belief in one’s ability to conduct actions (Bandura, 1977). Self-efficacy can influence one’s thoughts, self-confidence and behavior. In this manner, it has become predictive for success, with high levels of self- efficacy resulting in persistence and goal achievement (Bandura, 1989). Sufficient confidence in the opportunity will result in proceeding with the business idea and insufficient confidence will result in rejecting it. Thus, the development of a new business is critically dependent on the perceptions of nascent entrepreneurs towards the confidence they have in pursuing opportunities (Dimov, 2010).
Hypothesis 2. Opportunity confidence will be positively related to new business emergence.
Social Capital and Opportunity Confidence
Social capital can be associated with opportunity feasibility belief and start-up self- efficacy. In the context of opportunity feasibility belief, social capital facilitates the access to adequate tangible and intangible resources, such as information, money, physical assets,
9 human resources, visibility and a positive reputation (Adler & Kwon, 2002; De Carolis et al., 2009, Kwon et al., 2013; Thorpe et al., 2005). This can be explained by two theoretical approaches of social capital, namely weak tie theory (Granovetter, 1973) and structural hole theory (Burt, 1992). Weak tie theory focuses on the strength of the social ties between individuals. Ties among people of a social clique tend to be strong. Strong ties usually exist between friends, relatives and coworkers and can be described as frequent and emotionally intense. The information that is present within a social clique is usually shared quickly or already widely known to all the members of the clique. In contrast, ties that exist outside someone’s social clique tend to be weak. Weak ties consist of one narrow type of relationship, are infrequent and not emotionally intense. Weak ties are likely to be a bridge between
different social cliques (Granovetter, 1973). In this manner, especially weak ties in social capital can be seen as providing access to unique resources and information. Structural hole theory (Burt, 1992) is related to weak tie theory and focuses on patterns of relationships in someone’s social network. There is a structural hole between two individuals when they do not belong to each other’s social network. The structural hole theory predicts that it is beneficial for an individual to be socially connected with many people who themselves have no additional connections with people from the individual’s network. A network that contains a lot of structural holes, leads to several benefits for an individual: “more unique and timely access to information, greater bargaining power and thus control over resources and
outcomes, and greater visibility and thus career opportunities throughout the social system”
(Seibert, Kraimer & Liden, 2001, p. 221). Thus, based on weak tie theory and structural hole theory, high levels of social capital capturing a broad variety of contacts, facilitate the access to resources that entrepreneurs need (Seibert et al., 2001). A more positive opportunity
10 feasibility belief is likely to exist when social capital makes the acquiring of these resources relatively easy.
Besides that social capital can be associated with opportunity feasibility belief, it can be associated with the other component of opportunity confidence as well, namely start-up self-efficacy. Social capital can be associated with start-up self-efficacy based on the concept trust. Trust is an important aspect of social capital. In general, in communities where social capital is high, there are high levels of trust (Kwon et al., 2013). One of the forms of trust that exist is social trust (Lewis & Weigert, 1985), which can be defined as “a standard estimate of the trustworthiness of the average person - someone who is not a friend, not even an
acquaintance” (Kwon et al., 2013, p. 982). When entrepreneurs perceive that others have trust in them, this may contribute to their levels of start-up self-efficacy. Namely, when others show that they have trust in a person’s ability, this enhances the degree of self-efficacy of this person (Gist & Mitchell, 1992). This trust can be shown in the form of feedback on
someone’s ability (Bandura & Cervone, 1986). Other forms to show trust do not provide specific information about an individual’s ability, but are mainly related to convincing
someone with emotional or cognitive support (Schunk, 1983, 1984). Thus, the trust associated with social capital seems to enhance the level of entrepreneur’s start-up self-efficacy (figure 1).
Hypothesis 3. Social capital will be positively related to opportunity confidence.
Hypothesis 4. The relationship between social capital and new business emergence will be mediated by opportunity confidence.
--- Insert Figure 1 here ---
11 METHOD
Sample and Procedure
The data source for the present study is the US Panel Study of Entrepreneurial Dynamics (PSED), “the first large-scale national database to offer systematic, reliable, and generalizable data on the process of business formation” (Gartner & Carter, 2003, p. 215).
This panel study consists of PSED l, for which the screening started in 1998-2000 and a replication, PSED 2, for which the screening started in 2005-2006. The current study is based on data gathered during PSED l. PSED l is a long term survey in which phone screening has been used to identify nascent entrepreneurs from a large population sample. The nascent entrepreneurs were identified from a random sample of 64,222 adults in the USA based on a couple of questions. The first two questions are the following: “Are you, alone or with others, now trying to start a new business?” and “Are you, alone or with others, now trying to start a new business or a new venture for your employer? An effort that is part of your job
assignment” (Shaver, Carter, Gartner & Reynolds, 2001). A positive answer for one of these two questions was required to be considered a nascent entrepreneur. Moreover, positive answers were needed concerning the following questions: “Will you own all, part, or none of this new business?” and “In the past 12 months, have you done anything to help start this new business, such as looking for equipment or a location, organizing a start-up team, working on a business plan, beginning to save money, or any other activity that would help launch a new business?” (Dimov, 2010, p. 1135). By using these criteria, “3,592 nascent entrepreneurs were identified, of whom 2,763 (77 per cent) were involved in starting their own businesses, 349 (10 per cent) were involved in starting businesses for their employers, and 480 (13 per cent) were involved in both” (Dimov, 2010, p. 1135). Of these appropriate participants, 3,087 (83 per cent) voluntarily agreed to take part in interviews. Based on practical considerations,
12 approximately two-thirds of these potential respondents were chosen for detailed data
collection, compromising mail questionnaires and phone interviews. The first wave of data gathering was directly after the first screening. In total, 830 nascent entrepreneurs finished the phone interview and 562 of these respondents also filled in a mail questionnaire. In addition to wave 1, three waves of data collection were conducted by using mail questionnaires and phone interviews. These three waves were 14, 27 and 40 months after Wave 1 (Dimov, 2010).
Measures
Social capital. The independent variable social capital was measured as an ordinal variable from the wave 1 interview, using nine items in total on a five point Likert scale (α = 0.69). The items are presented in appendix A.
Opportunity confidence. The mediator opportunity confidence was measured as an ordinal variable from the wave 2 interview. Opportunity confidence is based on two variables, namely the opportunity feasibility belief and start-up self-efficacy of the entrepreneur. The measurement of start-up self-efficacy includes six items on a five point Likert scale (α = 0.80). The measurement of opportunity feasibility includes eleven items on a five point Likert scale (α = 0.83). The items are in accordance with Dimov (2010) and presented in appendix A.
New business emergence. The dependent variable new business emergence was measured as a binary variable from the wave 3 interview. The variable consists of one
question, namely: “If you had to put the current status of the start-up effort into one category, would you say it is now an operating business, still in an active start-up phase, still a start-up but currently inactive, or no longer being worked on by anyone?”. The scores are recoded in increasing order. To recode the scores as binary, the values “no longer worked on by anyone”
and “still a start-up but currently inactive” are labeled as “passive” and the values “still in an
13 active start-up phase” and “operating business” are labeled as “active”. Although in this study the items are considered as binary, Dimov (2010) used the items as well.
Five control variables will be taken into account, since existing theory shows that these variables may influence opportunity confidence and new business emergence.
Age. Lamotte and Colovic (2013) show that populations with a high share of young individuals have more entrepreneurial activity than populations with a high share of old individuals. The control variable age was measured with one item on interval level from the wave 1 interview.
Education. Van der Sluis, Van Praag and Vijverberg (2003) concluded from their meta-analysis on education that education significantly and positively influences
entrepreneurial performance. Davidsson (2006) mentioned that schooling is in general positively related to becoming an entrepreneur. Furthermore, Coleman, Cotei and Farhat (2013) mentioned that the resource-based view expects a positive relationship between
schooling and firm survival. The control variable education was measured with one item as an ordinal variable from the wave 1 interview. The categories are the following: 1 = up to high school degree; 2 = post high school/pre college; 3 = college degree; 4 = post college.
Work experience. Davidsson and Honig (2003) found that years of work experience is positively related to entrepreneurial activity. The control variable work experience was measured on interval level from the wave 1 interview, using one question: “How many total years of full time, paid work experience in any field have you had?”
General self-efficacy. General self-efficacy is “reflecting the nascent entrepreneur’s general belief in their ability to complete new tasks, achieve goals, and overcome obstacles”
(Dimov, 2010, p. 1138). Dimov (2010) mentions that general self-efficacy can affect an entrepreneur’s opportunity confidence and new venture emergence. The control variable
14 general self-efficacy was measured as an ordinal variable from the wave 1 interview. The measurement of general self-efficacy includes three items on a five point Likert scale (α = 0.88). The items are presented in appendix A.
Start-up motivation. Start-up motivation is “reflecting the strength of each
respondent’s commitment to establish their own business”. Dimov (2010) mentions that start- up motivation can affect an entrepreneur’s opportunity confidence and new business
emergence. The control variable start-up motivation was measured as an ordinal variable from the wave 1 interview. The measurement of start-up motivation includes three items on a five point Likert scale (α = 0.76). The items are presented in appendix A.
Data Analysis
To test the hypotheses mentioned above, a linear and logistic regression analysis will be used. A linear regression analysis will be used to examine the relationships between social capital and start-up self-efficacy and social capital and opportunity feasibility belief. A
logistic regression analysis will be used to examine the relationship between social capital and new business emergence, start-up self-efficacy and new business emergence and opportunity feasibility belief and new business emergence. PRODCLIN will be used to conduct the mediation analysis. With the use of PRODCLIN, it is possible to examine the indirect effect estimate of start-up self-efficacy and opportunity feasibility belief in the relationship between social capital and new business emergence (Tofighi & MacKinnon, 2011).
RESULTS Correlations and Descriptive Statistics
In table 1, the means, standard deviations and Pearson correlations are presented. As expected, social capital and start-up self-efficacy correlated positively (r = .15, p = .05).
Similarly, social capital and opportunity feasibility belief correlated positively (r = .26, p <
15 .01). Further, the mediators start-up self-efficacy and opportunity feasibility belief correlated positively (r = .31, p < .01). Social capital did not correlate significantly with new business emergence (r = -.01, p = .92). Further, start-up self-efficacy did not correlate significantly with new business emergence (r = .07, p = .38) and opportunity feasibility belief did not correlate significantly with new business emergence (r = .11, p = .16).
--- Insert Table 1 here --- Hypotheses Testing
Hypothesis 1 predicted that social capital is positively related to new business
emergence. The results of the logistic regression analysis are presented in table 2. There was no significant effect found of social capital on new business emergence (Exp (β) = .84, 95%
CI = [.64, 1.11], p = .21). Consequently, the analysis revealed no support for hypothesis 1.
Moreover, the effect was not in the expected direction. The value .84 indicates a slightly negative relationship between social capital and new business emergence.
Hypothesis 2 predicted that opportunity confidence (start-up self-efficacy and
opportunity feasibility belief) is positively related to new business emergence. There was no significant effect found of start-up self-efficacy on new business emergence (Exp (β) = 1.06, 95% CI = [.75, 1.60], p = .75). Furthermore, there was no significant effect found of
opportunity feasibility belief on new business emergence (Exp (β) = 1.11, 95% CI = [.87, 1.73], p = .25). Therefore, there is no support for hypothesis 2. However, the effect was in the expected direction. The values 1.06 and 1.11 indicate a slightly positive relationship between opportunity confidence and new business emergence.
--- Insert Table 2 here ---
Hypothesis 3 predicted that social capital is positively related to opportunity
confidence (start-up self-efficacy and opportunity feasibility belief). The results of the linear
16 regression are presented in table 3. These results show that social capital has a significant positive relationship with start-up self-efficacy (β = .16, SE = .05, p = .00). Moreover, social capital has a significant positive relationship with opportunity feasibility belief (β = .20, SE = .05, p = .00). Accordingly, hypothesis 3 can be accepted. In addition, out of the five control variables used, start-up motivation of the respondents contributed significantly to their start- up self-efficacy (β = .38, SE = .06, p = .00) and to their opportunity feasibility belief.
Furthermore, general self-efficacy of the respondents contributed significantly to their opportunity feasibility belief (β = .12, SE = .06, p = .02)
--- Insert Table 3 here ---
Hypothesis 4 predicted that the relationship between social capital and new business emergence is mediated by opportunity confidence. There was no significant mediation effect of start-up self-efficacy in the relationship between social capital and new business emergence (indirect effect = .01, SE = .03, 95% CI = [-.05, .08]). Furthermore, there was no significant mediation effect of opportunity feasibility belief in the relationship between social capital and new business emergence (indirect effect = .04, SE = .03, 95% CI = [-.03, .13]). Consequently, the analyses revealed no support for hypothesis 4.
DISCUSSION
The purpose of this research was examining the mediating role of opportunity confidence in the relationship between social capital and new business emergence. As expected, this study shows that social capital is significantly positively related to opportunity confidence in the field of entrepreneurship. In other words, nascent entrepreneurs who score high on social capital, have stronger beliefs that they have the knowledge and skills to successfully establish the business and that the business opportunity is feasible, than nascent entrepreneurs who score low on social capital. This study provided no support for the
17 prediction that nascent entrepreneurs who score high on social capital, are more successful in new business emergence than nascent entrepreneurs who score low on social capital.
Furthermore, no support was provided for the prediction that nascent entrepreneurs who score high on opportunity confidence (start-up self-efficacy and opportunity feasibility belief), are more successful in new business emergence than entrepreneurs who score low on opportunity confidence. Moreover, no support was found for the prediction that the relationship between social capital and new business emergence is mediated by opportunity confidence.
These results contribute to research on entrepreneurship because of the use of a process-view. Although the role of social capital was already proven in new business
emergence (Arregle et al., 2007; Kwon et al., 2013; Honig and Davidsson, 2003; Debrulle and Maes, 2014; Zhao and Aram, 1995), insight in the process behind it was a lack in the
literature that needed to be addressed (Hoang & Antoncic, 2003). Second, this study provides some evidence for opportunity confidence as being an umbrella concept in the context of social capital and new business emergence. Since the literature on entrepreneurship is rather fragmented, the presentation of this umbrella concept responds to the call for a more unified view on entrepreneurship (Moroz and Hindle, 2011). Third, this research confirms the fact that entrepreneurship is shaped by social processes (Thornton, 1999), by proving that social capital contributes significantly to opportunity confidence. Opportunity confidence can be seen as a precondition for pursuing business ideas (Dimov, 2010), which stresses the importance of having sufficient opportunity confidence as a nascent entrepreneur.
In the following paragraphs, attention will be paid to the theoretical and practical implications of the current study. Furthermore, limitations and directions for future research will be presented. Last, some conclusive remarks will be made.
18 Theoretical Implications
This research has shown that social capital contributes significantly to opportunity confidence, which addresses the call of Dimov (2010) to pay attention to the role of social capital in the context of opportunity confidence and new business emergence. The finding is in accordance with theory on social capital and entrepreneurship. That is, high levels of social capital facilitate the access to resource (Adler & Kwon, 2002; De Carolis et al., 2009; Kwon et al. 2013; Thorpe et al., 2005) and lead to high levels of trust (Gist & Mitchell, 1992; Kwon et al., 2013), which increase the entrepreneur’s confidence in the business opportunity at hand.
This research provided no support for the expected positive relationship between social capital and new business emergence and for the expected positive relationship between opportunity confidence and new business emergence. Moreover, there was no evidence for the expected mediating effect of opportunity confidence in the relationship between social capital and new business emergence. An explanation for the fact that these results are not in accordance with literature may be that opportunity confidence is not necessarily related to starting a business, but to gathering the resources and the trust that are needed for starting a business (Dimov, 2010). An outcome that is more proximal to opportunity confidence, such as developing a business plan, may be more relevant to focus on than new business
emergence (Hopp, 2014).
Furthermore, the time frame used in this study could have influenced the results. In this study, business emergence was measured across a time frame of two and a half years.
That time frame may have been too small to capture the effect of social capital on opportunity confidence and new business emergence. Fayolle, Gailly and Lassas-Clerk (2006) explain this by the fact that the new business emergence process generally takes time. It takes
19 individuals time to use their resources to create a venture. Consequently, using a larger time frame may have led to more significant results.
It was assumed in this research that nascent entrepreneurs can increase their social capital by actively investing in it. However, this causality may not be a matter of course and a little nuance may be appropriate here. Namely, the other way around is plausible as well:
having entrepreneurial success results in a larger social network (Zhao & Aram, 1995). In other words, individuals and organizations seek contact and are willing to establish social relationships with nascent entrepreneurs who are relatively successful, contrary to nascent entrepreneurs who are relatively unsuccessful. Being aware of the influence of this potential vicious circle may be useful in the interpretation of the research outcomes of the current study.
Although this research has not provided the evidence that was expected, social capital and entrepreneurship are closely connected to each other. Entrepreneurship takes generally place in a network of social relationships (Thornton, 1999). Consequently, entrepreneurship can be seen as a social phenomenon, instead of an individualistic activity to pursue a career choice. Thus, the question how social capital and entrepreneurship are related, is a question worth examining.
Practical Implications
A practical implication for potential entrepreneurs is to spend a considerable amount of time and energy on the acquiring of social capital. It is recommended to engage in a broad variety of social networks (Granovetter, 1973; Zhao & Aram, 1995). This will provide the entrepreneur with access to relevant resources and increase his levels of trust in the business opportunity. The entrepreneur should consider his social relations as necessary resources to
20 keep and stay in the business. Investing in social networks may be just as valuable as seeking out financial resources and other types of material capital (Zhao & Aram, 1995).
A practical implication for governmental institutions to reduce unemployment is taking measures to increase the levels of social capital in communities, since entrepreneurial activities contribute to the solution of unemployment problems. That is, engaging in self- employment in a particular community results in the availability of more jobs in that
community (Thurik, Carree, Stel & Audretsch, 2008). To increase the levels of social capital that nascent entrepreneurs can use, governmental institutions can organize network meetings and facilitate knowledge sharing via digital platforms.
Limitations and Future Research
A limitation of this study relates to the operationalization of social capital. In this operationalization, there was no distinction made between weak ties (one narrow type of relationship, infrequent and not emotionally intense) and strong ties (exist between friends, relatives and co-workers, are frequent and emotionally intense) between individuals. Instead, the focus was on social capital in general. This can be seen as a limitation, since weak and strong ties differ with respect to the extent they provide access to unique resources and
information. Namely, weak ties provide more access to unique resources and information than strong ties (Granovetter, 1973). Therefore, in future research on the determinants of new business emergence, a distinction can be made between strong and weak ties.
Furthermore, although new business emergence is an appropriate concept to capture the phenomenon of interest in this study (Dimov, 2010), no attention has been paid to the different stages of this new business emergence process. Namely, Baron and Markman (2005) make a distinction between three global stages of the new venture creation process. In first stages, nascent entrepreneurs engage in identifying opportunities and determining on whether
21 they want to pursue them. In middle stages, nascent entrepreneurs devote their time and energy to acquiring financial, human and informative resources. In later stages, nascent entrepreneurs focus on managing a growing new venture. Baron and Markman (2005) argue that these stages differ with respect to the variables playing a role. Thus, social capital might have different impacts on outcomes based on these different stages of the new business emergence process. In future research on the entrepreneurial process, the impact of social capital can be examined in these different stages.
Moreover, although social capital seems to be a relevant variable in the context of opportunity confidence and new business emergence, human capital can be seen in place for social capital to influence new business emergence. That is, Dimov (2010) has already associated human capital with opportunity confidence and new business emergence.
Moreover, social capital and human capital are related in a sense that venture creation takes place by combining social and human capital (Santarelli & Tran, 2013). Consequently, social and human capital can be examined in a combined way in future research on opportunity confidence and new business emergence.
Conclusion
This study has confirmed the importance of social capital in entrepreneurship, which challenges assumptions that entrepreneurship is an individualistic process. Namely, to acquire the autonomy and independence that is traditionally associated with entrepreneurship, one needs to depend on others. As it is not only who you are and what you can, but also who you know.
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28 Table 1. Correlation Matrix
1 2 3 4 5 6 7 8 9
1. Age ---
2. Education .22** ---
3. Work experience .72** .09 ---
4. General self-efficacy -.04 .10 .06 ---
5. Start-up motivation .16* -.05 .27** -.02 ---
6. Social capital .01 .03 -.04 .04 .01 ---
7. Start-up self-efficacy .03 -.15* .01 -.02 .33** .15* ---
8. Opp. feasibility belief -.08 -.09 -.08 .06 .16* .26** .31** ---
9. New bus. emergence .10 .07 .05 .02 .06 -.01 .07 .11 ---
M .41.81 2.42 18.40 4.10 3.84 3.00 4.20 3.69 .51
SD 10.90 .91 11.13 .84 .81 .55 .61 .60 .50
Notes: N= 169
* p < .05 level
** p < .01 level
29 Table 2. Logistic Regressions
Model DV:
New Business Emergence
Model DV:
New Business Emergence
Variables Exp (β) Exp (β)
Constant .84 .98
Age 1.50 1.35
Education .97 1.12
Work Experience .85 .90
General Self-Efficacy 1.13 1.03
Start-Up Motivation 1.13 1.10
Social Capital .84
Start-up self-efficacy 1.06
Opportunity feasibility belief
1.22
Pseudo R2 .03 .03
Chi-Square 11.91 7.32
Degrees of Freedom 8 8
-2 Log Likelihood 302.675 230.522 Note: N = 169
30 Table 3. Linear Regressions
Model DV:
Start-Up Self- Efficacy
Model DV:
Opportunity Feasibility Belief
Variables β β
Constant -.07 -.01
Age -.06 -.14
Education -.04 .06
Work Experience -.01 .07
General Self-Efficacy .08 .12*
Start-Up Motivation .38** .16**
Social Capital .16** .20**
R2 .14 .09
Notes: N = 169
* p < .05 level
** p < .01 level
31 FIGURE 1.
Conceptual Model
+ +
Social
Capital
Opportunity Confidence
New Business Emergence
32 APPENDIX A
Social Capital (α = 0.69)
How much do you agree or disagree with the following statements:
1 = completely disagree; 5 = completely agree
a. Those with successful businesses get a lot of attention and admiration.
b. Young people are encouraged to be independent and start their own business c. State and local governments provide good support for those starting new firms d. Bankers and other investors go out of their way to help new firms get started e. Other community groups provide good support for those starting new firms
f. There are many examples of well-respected people who made a success of themselves starting new businesses
g. Many of my friends have started new firms
h. Many of my family and kin have started new firms
i. Most of the leaders in this community are people who own businesses
Start-Up Self-Efficacy (α = 0.80)
Your reactions to this specific business start-up would also be very useful. How would you respond to the following descriptions of the firm and its situation?
1 = completely disagree; 5 = completely agree
a. If I work hard, I can successfully start a business
b. Starting a business is much more desirable than other career opportunities I have c. If I start a business, it will help me achieve other important goals in my life d. Overall, my skills and abilities will help me start a business
e. My past experience will be very valuable in starting a business f. I am confident I can put in the effort needed to start a business
Opportunity Feasibility Belief (α = 0.83)
Considering the economic and community context for the new firm, how certain are you that the new business will be able to accomplish each of the following?
1 = very low certainty; 5 = very high certainty
33 a. Obtain raw materials
b. Attract employees c. Obtain start-up capital d. Obtain working capital e. Deal with distributors f. Attract customers
g. Compete with other firms
h. Comply with local, state, and federal regulations i. Keep up with technological advances
j. Obtain a bank’s help
k. Obtain venture capitalists help
General Self-Efficacy (α = 0.88)
In your work, how do you feel about the following activities?
1 = very confident; 5 = not at all confident; scores recoded in increasing order
a. That you will be successful in completing new tasks b. That you can reach goals you set for yourself
c. That you will be successful when confronting obstacles
Start-Up Motivation (α = 0.76)
The following statements can be used to describe most people. How accurately would they describe you?
1 = completely untrue; 5 = completely true
d. I would rather have my own business than pursue another promising career
e. There is no limit as to how long I would give maximum effort to establish my business f. My personal philosophy is to do whatever it takes to establish my own business
