Social Capital, Communities, and the Firm: A Spatial Panel Study of Small Business Intensity and Firm Entry and Exit in Rural U.S. Counties

Businesses, whether large or small, do not exist in a vacuum. This is especially true in rural areas. Businesses employ family, friends and associates. Their suppliers and customers are neighbors. Competitors may know each other personally. For this reason, opening, operating and closing a business is a community event. The implications of entering or exiting a market are of clear importance to business owners whose profit earning potential is directly impacted by their relationships, or social capital, within the community. This research explores the degree to which relationships affect the concentration of small business and the level of firm entry and exit in a region.;My results suggest that in rural U.S. counties there is a small and consistent set of independent variables that ought to be included in estimations of models with small business density as the dependent variable. In contrast, there is a large and varied set of independent variables that ought to be included in estimations of models with measures of firm entry and exit as the dependent variable. The spatial panel model results suggest that a range of social capital measures vary in their effect on small business density and firm entry and exit. The small business results provide evidence that closed, or tight-knit, communities support a higher level of small business activity. The entry and exit results provide evidence that associational social capital promotes moderation of business entry in spite of a community's implicit institutions. Conversely, firm exit is increasingly variable as community social capital increases.