Social capital and small business productivity: The mediating roles of financing and customer relationships

TL;DR

This study investigates how entrepreneurs' social capital enhances small informal business productivity in Zambia by mediating through improved financing and customer relationships, revealing specific mechanisms previously overlooked.

Contribution

It uncovers the mediating roles of financing and customer relationships in translating social capital into increased productivity for small informal businesses.

Findings

Social capital improves business productivity via financing.

Customer relationships mediate the effect of social capital.

Identifies mechanisms overlooked in prior research.

Abstract

How does an entrepreneur's social capital improve small informal business productivity? Although studies have investigated this relationship, we still know little about the underlying theoretical mechanisms driving these findings. Using a unique Zambian Business Survey of 1,971 entrepreneurs administered by the World Bank, we find an entrepreneur's social capital facilitates small business productivity through the mediating channels of firm financing and customer relationships. Our findings identify specific mechanisms that channel social capital toward an informal business' productivity, which prior studies have overlooked.