China's social capital and financial performance of private enterprises

Purpose - This study aims to investigate the effects of social capital (defined as networks) on the performance of Chinese private enterprises. Design/methodology/approach - The paper employ an econometric model to test relationships between social capital and firm performance, using a sample of private enterprises in a survey in China in 2000. Findings - The analysis suggests two findings. First, memberships in various organizations do not appear to be significant in affecting the performance of Chinese private enterprises. Second, short-time investment in, and the flow of, social capital are significant determinants of enterprise performance. Research limitations/implications - The study examines only the effects of the short-time investment in social capital. Further research is suggested to examine the effects of long-term investments in social capital, the relationship between short-time investment and long-time investment in social capital, and the network as a whole, including informal networks. Originality/value - The paper uses the survey data in China to test Krishna's hypothesis which suggests that short-term investments can play a positive role in the financial performance of firms.