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The Roles of Regional Directorship Networks in Firm Failure among Colombian SMEs

Time:2018-02-27 13:35:11  Hits:[]

We expand board interlock research by developing theory and testing hypotheses about community-level social capital. Building on previous interlock research and social-capital theory, we theorize that for SMEs, intra-community board interlocks and centrality in the community-level directorship network decrease the hazard of failure. We also predict that inter-community (cross-regional) interlocks, and especially links to better-connected extra-community firms decrease the hazard of failure. However, because community-level social capital is localized, firms that have both intra- and inter-community interlocks experience an increased hazard of failure relative to firms with only intra-community or only inter-community interlocks. We believe that this effect is due to the highly localized nature of community-level social capital, which leads to higher levels of conflict when intra-community and inter-community interlocks simultaneously exist on the same board. Finally, we propose that a dense community-level directorship network benefits not only enterprises in the community with interlocks but also those without interlocks. We use a large sample of Colombian firms observed between 2000 and 2010 to test our hypotheses, and report strong empirical support for most hypotheses.
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