Institutional Environment, Social Capital,and Family Business

The study of enterprises’ social capital is a prospering topic in economics in recent years. Increasingly, research shows that social capital plays an important role in enterprises’growth. As a long-standing economic organization, family business study is a significant subject both from historical and realistic pespective. However, whether in history or in present economic transition period, the family businesses which constitute the majority of private economy, have been situated in disadvantageous institutional environment. Nevertheless, the family businesses still have been prospering. What makes this happen? Loads of studies have proven that social capital plays an important role in the imperfect institutional environment. Therefore the substitutional effect of social capital to formal institution has become an explanation. But most of the research has concentrated on what the social capital could bring to the firms, while little attention has been paid to the dimensions, nature and evolvement of the social capital itself, the underlying connection between social capital and the institutional context, the modification of social capital strategy of the firms, and the downside of social capital, etc.As a country in transitional economy, the institutional environment of the enterprises have been establishing and competing. So that to investigate the relation of institution, social capital and the firms from a dynamic view is a realistic topic. On the premise of analyzing the institutional context, this dissertation mainly investigates merchants’ social capital and how it infuleunces enterprises’growth.The key findings of this study are as follows,(1) From a long period historical and dynamic view, this research investigates the interconnection of institutional environment, social capital and the merchant organizations, which is contrary to the former literatures. This study dates back to the most recent historical origins of the modern Chinese family business, which is, the era when family businesses and merchant guilds were flourishing. It helps to get a thorough understanding of both the contributions and limitations of social capital to merchants, enterprises or even the economic growth from this point of view. It also helps to comprehend better about the path dependence of the modern firms to historical and cultural institutions. Moreover, the findings will give inspirations to entrepreneurs and policy makers.(2) The study clarifies the dimensions, goods attribute, and the forms of social capital, based on which social capital is applied to merchant and enterprises research. The basic reason why the goods attribute and research extents of social capital have been a disputed issue is that there have been confusions of social capital dimensions. Social capital is divided into individual and group dimensions according to its structure, which helps to clarify its goods attribute. Based on the two dimensions social capital could be both private good and public good. Moreover, it could be further differentiated to other two dimensions according to its trust foundations, which are particularistic trust and general trust. All these clarities of social capital help its application in group or individual level studies.(3) Based on the former points of view, the study investigates the social capital in different institutional environments. According to the typicality of the study objects, this research pays more attention to Ming&Qing merchants’ group social capital and modern enterprisers’ individual social capital. It finds that, in weaker institutional environment, the social capital based on particularistic trust would be more substitutable to formal institution. But as the institutional environment improving, this substitution effect declines, while the social capital based on general trust would play a greater role. This happens in both shorter and longer period. The details are shown as follows.Firstly, group social capital in merchant guilds study finds that, based on social capital, free-rider problem is avoided. Therefore Huiguan, which is a symbol of merchant groups becoming a "bang", plays a key role in merchants’ collective action. This mechanism provided a protection approach in weak institutional environment lack of formal property protecting system. But this social capital is usually based on particularistic trust, which may lead to monopoly or self-enclose. Modern merchants taking part in more open societies, is the underlying demand of market economy.Secondly, individual social capital applied in modern merchants study shows that, in weaker institutional context, generally, merchants depend more on social capital, especially which could bring privileged market rights. However, as the improvement of the institutional environment, the dependence on social capital decreases. At the same time, market-oriented social capital rises.From a theoretical perspective, these findings provide an amelioration of former studies, which also gives inspiration to both business social capital investment strategy and government institution construction policy in practical significance.