Social capital inequality and capital structure of new firms in a developing country: the role of bank ties

Abstract

PurposeThis article aims to clarify the role of social capital and social capital inequality embedded in bank ties in enabling and diversifying new firms' debt use.Design/methodology/approachThe study adopts a quantitative method, using an unbalanced longitudinal dataset covering three years–2011, 2013 and 2015–from a project on small manufacturing enterprises in Vietnam. The sample consists of 513 firm-year observations.FindingsNetwork extensity and network mobilisation increase new firms' debt use. Differences in ascribed and attained social statuses (i.e. gender, generation, business association membership and political affiliation) result in social capital inequality between entrepreneurs. Entrepreneurs who are of a younger generation, have higher levels of education and are not members of the Communist Party benefit less from social capital than those who are older, have less education and are party members.Originality/valueThe effects of access to and the use of the social capital embedded in bank ties on new firms' debt use are both studied. The sources of social capital inequality are investigated at the individual level through distinguishing ascribed and attained social statuses and explained by two mechanisms: capital deficit and return deficit. The moderating effects of social capital inequality are also examined.