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 uptake of risk-free loans controlling for close-by bank branches, income, and education. One standard deviation increase in the social capital metric accounts for 20 percent of the variation in uptake across zip codes, surpassing the impact of a bank branch within 1000 yards. Strong social capital benefits large, low-growth stores in less-dynamic areas, whereas bank branches benefit small, high-growth stores in more-dynamic areas. Virtual connections have the greatest effect on takeup 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 (April 28, 2023). Available at SSRN: https://ssrn.com/abstract=4078042 or http://dx.doi.org/10.2139/ssrn.4078042