This study develops a model of the causal impact of social capital on organizational performance, with particular attention to specifying the contingencies that transform some kinds of network ties into social capital or social liability. The study unpacks the “black box” linking social structure and firms’ goal attainment by turning to mid-level theories of group and group processes. Hypotheses were tested using data from a national survey of investment clubs. The findings indicate that net increases in instrumental ties at the individual level produce social capital at the organization level in two ways: by increasing the information pool available to decision makers, and increasing their willingness to engage in constructive debate about that information. The combined effects produce increased profits for the organization.
- social capital; group processes; decision making; financial performance; investment clubs