The entrepreneurial process between social networks and firm performance

Abstract

An understanding of venture success and failure is crucial to the stability and health of the economy. One of the fundamental questions in the study of entrepreneurship is why some new ventures succeed and others do not. Social networks are considered to be important factors in the entrepreneurial process for achieving better performance. This dissertation builds a model disentangling the entrepreneurial process between social networks and firm performance by examining empirically the effects of social connections on access to information, access to resources and firm innovativeness. It also explores the effects of social networks' structural characteristics by means of testing two major theories of social networks: strength of weak ties (Granovetter, 1973) and structural holes (Burt, 1992). A mail survey was used as the method for data collection. A total of 244 information technology firms constituted the sample of the research. This study is unique for its inclusion of a number of mediating effects, i.e. access to information, access to resources and firm innovativeness that aid in understanding how social connections affect firm performance. The advanced structural equation modeling method was applied to examine the mediating effects, compare the hypothesized model with alternative or nested models and find out the best-fitting model to test the hypotheses. The results suggest that the effect of social connections on firm performance is not just simply directly related but goes through a process. Firm innovativeness is the most important factor facilitating firm performance in the entrepreneurial process. These findings strengthen the idea that entrepreneurship is a process and not static by its very nature. Although this study finds that both weak ties and structural holes are not significantly related to any mediating factors and firm performance, it explores the conceptual integration of the major social networks theories, accompanied with an empirical test.