Social Capital as a Protective Shield for Entrepreneurs in an Informal Economy

How does entrepreneurial risk-taking affect firm performance? Although the conventional wisdom is that they are positively related, a number of incidences of negative association have been discovered as well. The contradictory evidence means that the issue is far from settled (Baird & Thomas, 1985). Migrants and political asylum seekers operating in the informal economy, face even greater uncertainty due to the high intensity of their business environment. Building on social capital theory, this paper argues that social capital interacts between risk taking and firm performance such that social capital partially protects the firm from negative effects of risk taking while enhancing its positive effects to improve firm performance. It also tries to understand the economy as a context to see its influence to operate in formal and informal economy. As such, it hopes to explain informal economy, which has been barely studied in entrepreneurship literature, as a boundary condition to influence their performance. Therefore, this paper tries to relax the well-known paradox in entrepreneurship literature by introducing the protective role of social capital as an interface.