Seizing Opportunities: Small Businesses, Social Capital, and Banks

Why do small businesses exploit business opportunities better in some areas than others?
In a sample of 1.2 million consumer-facing establishments, social capital predicts the take-up of risk-free loans controlling for nearby bank branches, income, and education. One standard deviation in the social capital metric accounts for 20 percent of the variation in take-up rates across zip codes, surpassing the impact of a bank branch within 1000 yards. Strong social capital benefits larger, low-growth stores in less-dynamic areas, whereas bank branches help smaller, fast-growing stores in more dynamic areas. Virtual connections have the greatest effect in already advantaged locations.

Keywords: Social Capital, Reciprocity, Business Dynamism,Small Business, Local Banks, PPP, Virtual Connections

JEL Classification: G32, G20, Z1

Suggested Citation: Suggested Citation

Maksimovic, Vojislav and Xue, Jing and Yang, Liu A., Seizing Opportunities: Small Businesses, Social Capital, and Banks (August 21, 2023). Available at SSRN: https://ssrn.com/abstract=4078042 or http://dx.doi.org/10.2139/ssrn.4078042