CEO Social Capital and Entrepreneurial Orientation of the Firm

Abstract

Prior studies demonstrate the role of various facets of CEOs’ individual characteristics in shaping a firm’s entrepreneurial orientation (EO). We complement this line of research by theorizing and testing the impact of CEOs’ social capital on EO. From an original, multisource survey data set of 122 Chinese technology firms, we find that a CEO’s bonding social capital with organizational members from various functional units has an inverted U-shaped relationship with firm EO, while the CEO’s bridging social capital with the firm’s diverse set of external stakeholders has a positive association with EO. In addition, we find that the relationship between CEO bridging social capital and EO becomes stronger as the firm’s environmental instability increases.

Keywords

entrepreneurial orientation CEO social capital environmental instability

A firm’s entrepreneurial orientation (EO) significantly shapes its growth and adaptation (Covin & Slevin, 1989; Lumpkin & Dess, 1996). Despite varied views on its specific manifestations and composition, EO is often viewed in terms of the firm’s endeavor for innovativeness, risk taking, and proactiveness (Covin & Lumpkin, 2011; Miller, 2011). Thus, firms that pursue greater innovation, display greater willingness to undertake somewhat risky initiatives and strategic commitments, and proactively beat competitors are viewed as entrepreneurially oriented. As defined, growing theory and evidence suggest that EO can enhance firm performance (e.g., Keh, Nguyen, & Ng, 2007; Lee, Lee, & Pennings, 2001; Wiklund & Shepherd, 2005).

Given that EO influences a firm’s ability to compete, adapt, and perform in increasingly turbulent environments, there exists a great interest in its origins. Although CEOs lead under considerable internal and external constraints (Hambrick & Finkelstein, 1987), studies have begun reporting that firms’ entrepreneurial proclivities and engagements are shaped by CEOs’ leadership style (Ling, Simsek, Lubatkin, & Veiga, 2008), tenure in office (Simsek, 2007), and personality—notably self-esteem, emotional stability, hubris, overconfidence, core self-evaluations, and the five-factor model (e.g., Begley & Boyd, 1987; Miller & Toulouse, 1986; Nadkarni & Herrmann, 2010; Simon & Houghton, 2003; Simsek, Heavey, & Veiga, 2009). As such, a firm’s EO may partly become a reflection of its CEO’s characteristics, given the CEO’s unique position and influence as the firm’s chief cognizer and decision maker (Hambrick & Mason, 1984).

We here depart from the tradition of explaining EO with the CEOs’ individual characteristics and instead focus on their social capital as a conceptual foundation. An individual’s social capital derives from his or her interpersonal connections and the information, influence, and solidarity derived from these connections (Adler & Kwon, 2002). Prior studies demonstrate that executive ties can serve as conduits for the access and transfer of knowledge and resources within and across firms (Cao, Maruping, & Takeuchi, 2006; Collins & Clark, 2003; McDonald, Khanna, & Westphal, 2008) and sociorelational benefits such as legitimacy and status (Geletkanycz, Boyd, & Finkelstein, 2001). These ties can also help reduce executives’ perceived environmental complexity and ambiguity by providing timely and relevant information for strategic decision making (Peng & Luo, 2000). These effects render CEO social capital as a uniquely relevant lens to explain EO because evidence shows that executive influence on EO is especially salient in the context of resource constraints, ambiguity, and uncertainty intrinsic to entrepreneurial action (e.g., Lumpkin & Dess, 1996; Simsek et al., 2009).

Because executive ties originate from intrafirm and interfirm social systems (Cao et al., 2006; Collins & Clark, 2003), our theoretical development focuses on specifying the implications of a CEO’s bonding and bridging social capital for EO. A CEO may have intrafirm social connections with organizational members in different departments or functional units. In this respect, his or her social ties serve as a mechanism of “bonding” individuals and groups throughout the firm (Coleman, 1990; Lin, Ensel, & Vaughn, 1981). Conversely, a CEO may have extrafirm social ties with various external groups of firm stakeholders, including customers, suppliers, competitors, partners, financial agencies, industrial authorities, and government agencies. These social ties span organizational boundaries and “bridge” the firm to a diverse set of external stakeholders (Granovetter, 1973; Hansen, 1999).

Our study builds and tests a CEO social capital model of EO, suggesting that a firm’s EO is differently shaped by the CEO’s bonding and bridging social capital. Moreover, based on the contingency view of social capital (Burt, 1997; Uzzi, 1997), we argue that the effectiveness of bonding and bridging social capital varies across environmental conditions, and environmental instability is such a key contingency variable. By doing so, we provide a novel understanding about under what circumstances a CEO’s efforts expanded into developing social ties to internal and external stakeholders is helpful in spurring the entrepreneurial behavior of the organization. The specificity, variability, and conditionality of influences that we develop and demonstrate regarding CEO social capital advance research on EO, upper echelons, and social capital. In addition, while prior studies distinguish between bonding and bridging social capital (Adler & Kwon, 2002), our study is the first to investigate their CEO-level entrepreneurial consequences for the firm.

Theory and Hypotheses

While EO may be considered at an individual-level of analysis (e.g., Kariv, 2011), researchers have been overwhelmingly interested in its manifestations, causes, and consequences as a firm-level phenomenon (Covin & Lumpkin, 2011). Miller (1983), often credited with substantiating the essential elements of EO (Covin & Lumpkin, 2011), construed an entrepreneurial firm along three dimensions—innovativeness, risk taking, and proactiveness. Covin and Slevin (1986, 1989) enriched this conceptualization and operationalization of these dimensions, which has served as a foundation for EO research (e.g., Lumpkin & Dess, 1996; Stam & Elfring, 2008; Wiklund & Shepherd, 2003). In this literature, innovativeness concerns the firm’s tendency to pursue new ideas, novelty, and experimentation that can result in new products, services, or technological leadership position; risk taking refers to the firm’s willingness to engage in risky projects and managers’ preferences for bold strategic commitments and actions; and proactiveness involves a firm’s forward-looking perspective in seeking new opportunities and shaping the competitive landscape. These dimensions are highly related and viewed as integral components of EO. As Miller (1983: 780) points out,

In general, theorists would not call a firm entrepreneurial if it changed its technology or product line (“innovated” according to our terminology) simply by directly imitating competitors while refusing to take any risks. Some proactiveness would be essential as well. By the same token, risk-taking firms that are highly leveraged financially are not necessarily entrepreneurial. They must also engage in product-market or technological innovation.

Using this conceptualization, prior studies have examined the consequences of EO and linked it to a variety of firm outcomes, such as performance (Lee et al., 2001; Wiklund & Shepherd, 2003, 2005), learning (Sapienza, De Clercq, & Sandberg, 2005), and information acquisition and utilization (Keh et al., 2007). Researchers have also recognized the importance of organizational (Covin, Green, & Slevin, 2006; Miller, 1983) and environmental contexts (Becherer & Maurer, 1997; Lumpkin & Dess, 2001) for EO. As EO’s determinants have piqued scholarly curiosity, a stream of research highlights senior executives’ influence on EO, focusing, in particular, on the CEO’s individual characteristics (e.g., Begley & Boyd, 1987; Ling et al., 2008; Nadkarni & Herrmann, 2010; Simsek et al., 2009). This stream largely builds from the upper-echelons view of the firm, with the premise that executives’ actions and their personalized interpretations of the strategic situations are a function of executives’ experiences, values, and personalities (Hambrick & Mason, 1984). Although CEOs are shackled by numerous internal and external constraints (Hambrick & Finkelstein, 1987), evidence supports the notion that their individual characteristics may shape EO. Studies have begun demonstrating that CEOs’ individual characteristics, “who CEOs are”—their demography, personality, leadership style, and so on—are of critical importance to firm EO.

Even though this line of inquiry provides a wealth of insights into how CEO characteristics can shape EO, to our knowledge prior research has not directly examined CEO social capital or “who CEOs know” in explaining firm EO. CEOs cultivate and grow social capital through a variety of ties from inside and outside their own organizations (Cao et al., 2006; Collins & Clark, 2003), which correspond to two types of social capital—bonding and bridging (Adler & Kwon, 2002). A CEO’s bonding social capital refers to his or her social ties with organizational members across various departments or functional units within the firm. Such intrafirm ties foster a unified organizational community (Coleman, 1990) and complement the formal organizational structure as an alternative social channel for the CEO to reach organizational members in diverse functions (Cao et al., 2006). A CEO’s bridging social capital refers to his or her social connections with individuals from a diverse set of external organizational stakeholder groups, such as customers, suppliers, competitors, partners, financial agencies, industrial authorities, and government agencies. These ties can serve as diverse information sources for the firm regarding the opportunities and changes in the competitive environment (Geletkanycz & Hambrick, 1997; McDonald et al., 2008).

Our model posits that a CEO’s bonding and bridging social capital shape firm EO respectively and that the influence of CEO social capital is contingent on environmental instability. Because EO is a latent, umbrella construct, our hypothesis development focuses on direct and concrete mechanisms that tie each type of CEO social capital to the core facets of EO—innovativeness, risk taking, and proactiveness.

First, we contend that CEO bonding social capital can enhance the firm’s innovativeness, risk taking, and proactiveness by increasing the CEO’s awareness of knowledge and perspectives throughout the firm and ability to mobilize and coordinate resources efficiently. Yet because overembeddedness in an internal social network can give rise to information redundancy, common socialization, and shared mental framework, bonding social capital is vulnerable to the adverse effects of diminishing returns and eventually reverts to negative at too high levels, resulting in an inverse U-shaped relationship between CEO bonding social capital and EO. Moreover, we argue that CEO bridging social capital provides the firm with novel and private information and resources that spur innovativeness, risk taking, and proactiveness. Yet because cultivating bridging social capital is costly due to the requirements of establishing and maintaining external ties (Burt, 1992, 1993; McFadyen & Cannella, 2004), it is likely to insular to atrophic forces of under- or overembeddedness, and thus is argued to be linearly conducive to firm EO.

Then, based on the contingency view of social capital that the ultimate influence of social capital varies across environmental conditions (Burt, 1997; Uzzi, 1997), we introduce environmental instability as a crucial contingency variable to explain each CEO social capital effect on EO. Because unstable environments give rise to more opportunities, challenges, and greater need for innovation, risk taking, and proactiveness, we argue that environmental instability bolsters the knowledge and resource integration benefits of the CEO’s bonding social capital on EO. It also prompts the firm to rely more on the external information and resources that CEO bridging social capital brings in for innovative combinations, reasoned risk taking, and pioneering actions. Below we develop grounding for each of these relationships.

CEO Bonding and Bridging Social Capital and Firm-Level EO

When a CEO forges social connections with more individuals from different organizational departments, he or she is likely more cognizant of the scope, nature, and potential of organizational resources (Collins & Clark, 2003; Mintzberg, 1973). He or she is also exposed to various perspectives embedded in different organizational functions and operates at the crossroads of information and viewpoints. As such, a CEO with a larger and more diverse network of intrafirm social ties should be more capable of identifying combinative options among diverse parts of the firm, thus enhancing the firm’s innovative potential (Grant, 1996; Kogut & Zander, 1992; Nahapiet & Ghoshal, 1998). Furthermore, the CEO’s bonding social capital can enable him or her to exert greater control over the intrafirm flow of knowledge and resources toward innovative engagements (Cao et al., 2006). With such “informal” power (Ibarra, 1993), a CEO may also more productively allocate resources across different functions with varying interests and priorities. As such, a CEO with more bonding social capital has greater social influence and control over the flows of knowledge and resources and becomes more aware of and effective in pursuing innovative combinations within the firm (Katila & Ahuja, 2002; Smith, Collins, & Clark, 2005).

In addition, the theory of reasoned risk taking posits that risk taking is more likely when firms are better capable of assessing and managing risk (Carpenter, Pollock, & Leary, 2003; Simsek, 2007; Wiseman & Gomez-Mejia, 1998). When the CEO has more bonding social capital within the firm, he or she is in a better position to consolidate perspectives across different functions within the firm so as to have a more comprehensive evaluation of the firm’s risky endeavors. Moreover, bonding ties of the CEO may enable him or her to coordinate resources within the firm to the most appropriate use for fallback options. Informed and prepared to take action, a CEO with extensive bonding ties is likely more confident to lead the firm toward riskier initiatives and activities.

A firm is also likely to be proactive when it departs from its current competitive logic by acting on future problems, needs, and changes as a pioneer (Miller & Friesen, 1978; Venkatraman, 1989). Through more bonding ties, the CEO is more likely to be exposed to diverse viewpoints that break his or her own mental model regarding the firm and the competitive market. For instance, the CEO’s ties to mid- and operating-level managers can be a rich source of information about changing market demands, evolving industry conditions, and emerging technologies, which might be the seeds of first mover opportunities for the firm (Burgelman, 1983, 2002). In addition, the CEO’s greater ability to mobilize resources within the firm also enables it to capitalize on the identified opportunities quickly before the competitors act on them.

Nonetheless, the integrative advantages of CEO bonding social capital—exposure to diverse knowledge, resources, and perspectives within the firm as well as ability to mobilize and coordinate them—is likely to reach a limit as the CEO further builds his or her bonding social capital, and its positive effects on firm EO are likely to atrophy and eventually revert to negative. Our expectation of an inflection point is related fundamentally to cost of information redundancy, common socialization, and shared mental framework. After a certain threshold, the CEO’s ties with individuals from similar functions may bring redundant information and resources (Burt, 1992). Besides, dense flows of knowledge and perspectives across organizational functions as prompted by the CEO’s bonding ties will eventually result in shared mental framework within the firm (Gargiulo & Benassi, 2000; Simsek, Lubatkin, & Floyd, 2003). Such cognitive similarity within the organization leads to less divergent thinking, increases groupthink, and reduces novelty of solutions (Janis, 1972; Katz, 1982; Weick, 1976). Under this condition, the integrative potential of intrafirm knowledge and resources for innovation will decrease and the search for innovative solutions will become myopic (Cyert & March, 1963). Moreover, risks associated with entrepreneurial initiatives will be assessed only narrowly and with a firm-centric bias. Finally, convergence of viewpoints will inhibit the discovery of novel opportunities (Smith & Cao, 2007), which prevents the firm from taking pioneering competitive actions. All these dampening mechanisms may thus mitigate the effectiveness of higher levels of CEO bonding social capital for stimulating firm EO. Together, these arguments suggest that a moderate amount of CEO bonding social capital is likely the most conducive or “optimal” for firm EO.

Hypothesis 1: CEO bonding social capital, which encompasses the CEO’s social ties with organizational members across different functional units within the firm, has an inverted U-shaped relationship with the firm’s EO.

A CEO’s bridging social capital plays a boundary-spanning role linking the CEO with external entities that serve as conduits for accessing new, valuable, strategic information and resources to the firm (Adler & Kwon, 2002; Uzzi & Dunlap, 2005). Prior theory and evidence indicate that innovation often arises from incorporating knowledge from outside the firm (Boeker, 1997; Rosenkopf & Nerkar, 2001). For instance, a CEO’s social ties with customers enhance the firm’s understanding of changing customers’ needs and may prompt firm innovation (Yli-Renko, Autio, & Sapienza, 2001). Bridging ties also tend to facilitate exposure to different approaches, perspectives, and ideas (Hargadon, 1998) that help circumvent intraorganizational biases in fostering innovation (Walsh, 1995).

Furthermore, with greater bridging social capital, the CEO will be more confident in bearing higher risks intrinsic to entrepreneurial pursuits. Such ties can help the CEO to gain external feedback and better predict market responses and outcomes of risk-taking activities. This is likely to give the CEOs a greater sense of mastery, control, and preparedness (McMullen & Shepherd, 2006). Ties to external contacts can also provide a CEO with an exposure to new products, markets, technologies, and strategic logics that enable his or her firm to overcome the familiarity trap, a key impediment to organizational risk taking (Ahuja & Lampert, 2001).

In addition, the new and often private information collected from the CEO’s bridging connections outside firm boundaries creates a significant advantage for the firm to act proactively. The information from these external ties is likely to expand the CEO’s horizon to detect future trends and asymmetries in the market (Geletkanycz & Hambrick, 1997). For example, decision makers who draw on external networks to scan the environment tend to be alert to potential changes in factor markets and consumer preferences (Day, 1994). Through bridging ties outside the firm, the CEO may also have access to private information that others do not have (Uzzi & Dunlap, 2005). Such private information puts the firm in a position to better identify, assess, and exploit new opportunities before they are known or discovered by others.

Finally, prior studies suggest that cultivating social ties is not without costs, as reflected in time and energy input to establish and sustain ties (Burt, 1992, 1993; McFadyen & Cannella, 2004). While the costs may be relatively low for intrafirm connections given the CEO’s power status within the firm, costs can be high for extrafirm ties. A CEO needs to make effort to, first of all, search for such external ties that may carry strategically valuable information. In addition, as these external contacts represent a variety of different goals and identities of their respective organizations, a CEO needs to invest more time and energy in maintaining and managing this diverse set of relationships. A CEO is thus constrained by such costs from overbuilding bridging social capital. In fact, Ahuja and Lampert (2001) and Katila and Ahuja (2002) report evidence suggesting that only a limited number of companies are likely to oversearch through external ties because of the associated high costs. Importantly, at the same time, CEO bridging social capital manifests only when its costs are exceeded by the benefits it brings. In other words, although CEO bridging social capital might also be vulnerable to the adverse effects of costs at very low levels, these effects are not likely to materialize as the CEO would otherwise strive to build more bridging social capital to overcome the costs. Consequently, we expect that CEO bridging social capital, because of its likely insularity to atrophic forces of under- or overembeddedness, is to have a positive shaping influence on EO by providing the firm with timely, novel, and private information and resources.

Hypothesis 2: CEO bridging social capital, which encompasses the CEO’s social ties with the firm’s diverse set of external stakeholders, has a positive relationship with the firm’s EO.

Moderating Role of Environmental Instability

Social capital research suggests that the value of social capital varies across distinct environmental conditions (Burt, 1997; Uzzi, 1997). Consistently, we suggest that environmental instability acts as a key contingency variable for the effects in the earlier hypotheses. A highly unstable environment is characterized by rapid and discontinuous changes in demand, competitors, technology, and/or regulations, such that “information is often inaccurate, unavailable, or obsolete” (Eisenhardt & Bourgeois, 1988: 738). Because unstable environments give rise to more opportunities and challenges for innovation, risk taking, and proactive behaviors (Aldrich, 1979; Scott, 1981), environmental instability is likely to moderate the effects of CEO bonding and bridging social capital on EO.

Our first hypothesis suggests that peak EO occurs when the firm is led by a CEO with an intermediate level of bonding social capital as this enables the firm to best enjoy integrative advantages in pursuing innovative, risk-taking, and proactive activities without being too much constrained by redundant information and homogenization of viewpoints. We expect that in highly unstable environments, the beneficial impact of CEO bonding social capital on EO is likely to persist longer, such that the threshold to turn to a negative effect occurs at a higher level of bonding social capital. First, cause–effect relationships of innovative solutions become intractable, ambiguous, and changing in unstable environments (Eisenhardt & Bourgeois, 1988; Henderson, Miller, & Hambrick, 2006). As a result, the firm needs to experiment with more variety of intrafirm combinations of resources and knowledge to innovate successfully. A CEO with a greater level of bonding social capital within the firm is more likely to meet such challenges, given his or her thorough awareness of the firm’s existing resource repertoire and potential synergistic combinations, as well as enhanced power to coordinate and mobilize them. Second, in a highly unstable environment, the nature and level of risks associated with any entrepreneurial undertaking change constantly. In this case, the ability of the CEO to utilize social mechanisms to integrate intrafirm expertise and resources becomes more critical in preparing the firm for any risk-taking activity. Third, as far as taking pioneering actions is concerned, a highly dynamic environment poses greater challenges for timely identification and exploitation of new opportunities (Miller & Shamsie, 2001). In this regard, a CEO’s bonding social capital allows him or her to synthesize diverse perspectives within the firm more rapidly in envisioning future problems and needs. Through fostering a trust-based organizational community above and beyond the formal organizational procedures, the CEO’s bonding ties become even more important to ensure timely and smooth flow of resources across diverse parts of the firm to capitalize on the emerging opportunities.

Accordingly, we suggest that CEO bonding social capital becomes more potent in fostering EO as environmental instability goes up, and its reverse effect should occur at a higher threshold. In a stable environment, however, the benefit of CEO bonding social capital for the effectiveness and speed of intrafirm integration and coordination is less pronounced, and thus is likely to quickly hit the inflection point.

Hypothesis 3: Environmental instability moderates the curvilinear (inverted-U) relationship between CEO bonding social capital and the firm’s EO, such that in a more unstable environment, peak EO occurs at a higher level of CEO bonding social capital.

Regarding the relationship posited by Hypothesis 2, we expect that in unstable environments, CEO bridging social capital will be more valuable to foster firm EO. First, environmental changes necessitate the CEO to rely more on updated information and resources for innovation (Wu, Levitas, & Priem, 2005). The advantage of CEO bridging social capital thus becomes more pronounced in bringing the firm up-to-date information and resources from the environment, such that incorporation of them with existing resources within the firm engenders meaningful, contemporary innovations. Second, environmental instability generally increases a firm’s performance variance (H. Li & Atuahene-Gima, 2001), adding additional risks to the outcomes of its entrepreneurial pursuits. Therefore, feedback information from the CEO’s greater number and diversity of bridging ties is of particular importance in predicting and evaluating the risk involved in these initiatives, and further enhancing the confidence of the CEO and the firm to bear risks. Third, an unstable environment offers the firm continuous supply of new opportunities and threats (Haleblian & Finkelstein, 1993) and tends to make the identification and framing of problems and needs less systematic than in a stable environment (Keck & Tushman, 1993). Being proactive in such environments places more pressure on the firm’s ability to access relevant industry information through private mechanisms. Thus, the CEO’s drawing on his or her personal connections outside the firm for private, rich, and reliable information is likely to lead the firm toward greater pioneering undertakings as environmental instability increases.

Together, we suggest that environmental instability heightens the requirement for external resources in the firm’s entrepreneurial search and actions. As such, it boosts the positive effect of CEO bridging social capital on EO under such a condition. In a relatively stable environment, where the resource combinations and perspectives underlying the firm’s decision making on innovative, risk-taking, and proactive activities remain relatively stable, the advantages arising from the CEO’s bridging social capital become less potent.

Hypothesis 4: Environmental instability moderates the positive relationship between CEO bridging social capital and the firm’s EO, such that in a more unstable environment, the positive relationship is stronger.

Method

Sample and Data Collection

We collected our data through questionnaires from three high-tech parks in China. This setting is appropriate to test our study’s model for three reasons. First, for technology firms competing on new products and markets, EO is particularly relevant. Second, these are private, single-business, and small- to medium-sized firms, in which the role of the CEOs is arguably highly salient as compared to large, diversified public firms (Lubatkin, Simsek, Ling, & Veiga, 2006). Third, in a transitional economy of China, where rules and policies for the market-based system have not been fully established and transparent (Peng & Heath, 1996), the CEO’s social connections are especially important channels for the firm to acquire strategic information to deal with competitive and institutional constraints (Peng & Luo, 2000).

We randomly selected a total of 200 firms out of the total population of firms in three high-tech parks located in three provinces that represent the three major Chinese economic zones: the eastern coastal zone (Shandong), the southern zone (Guangdong), and the midwestern zone (Sichuan). We obtained the names and contacts of each firm’s CEO and CTO (chief technology officer) from the park administrative offices and hired research assistants directly from those offices. We trained these assistants, who then went to each of the sample firms on site to deliver two separate questionnaires, together with stamped return envelopes, in sealed envelopes to the CEOs and CTOs and also to clarify the requests. After being provided with the list of nonrespondents, they made reminder phone calls or visits themselves. These local assistants oftentimes knew in person the firm management within their parks, and we believe that such personal relationships, given their well-known value to Chinese, induced respondents to participate in the survey, thus boosting our response rate (see below). We developed the questionnaires in English after conducting interviews with CEOs of entrepreneurial firms in China to get an understanding of the research phenomenon and relevant constructs. We used the conventional back-translation method to ensure the equivalency of meaning in the Chinese version (Brislin, 1980).

The final sample consists of 122 firms, representing completed questionnaires from both the CEO and the CTO with usable data. The response rate was 122/200 (61%). Based on the assumption that late respondents are more similar to nonrespondents than to early respondents (Kanuk & Berenson, 1975), nonresponse bias was assessed in three ways. First, we ran correlations of the firm’s order of response to the survey with firm age, firm size, CEO bonding and bridging social capital, environmental instability, and EO. None of these correlations are significant, indicating no evidence of nonresponse bias (Combs & Ketchen, 1999; Kanuk & Berenson, 1975). Second, we split the sample into early and late respondents and compared the two groups on the above list of variables and found no significant mean differences between them on any of these variables. Third, using Heckman procedures, we performed the probit model on our entire sample and included the inverse Mills ratio in the regression analysis on only the subsample of early respondents. The inverse Mills ratio is not significant in the second regression, and the results based on the subsample of early respondents are consistent with those from the main analysis on the full sample (reported below). Together these statistics and tests lend us confidence in a minimal selection bias in our sample.

The 122 firms in the final sample averaged 118 employees, $3.4 million in sales, 6.2 years in age, and 4.7 top management team members (including the CEO). In terms of geographical location, 74 of them were from eastern China, 25 from southern China, and 23 from midwestern China. These firms represent a variety of high-tech industries as identified in Zahra, Ireland, and Hitt (2001), including biotechnology (3.3%), computer software (14.8%), factory automation (13.9%), electronics (23.0%), telecommunication (16.4%), environmental technologies (2.5%), specialty chemicals (4.1%), test measurements (4.9%), advanced materials (7.4%), semiconductors technology (4.1%), and medical and surgical equipment (3.3%). We found no significant differences across industries in either firm age or firm size.

To mitigate common method bias concerns, we collected data for dependent variables and independent variables from different key informants (i.e., CEOs and CTOs). The CTO was chosen as the second informant because in these high-tech firms that compete on technology and new products, CTOs naturally play the second most important role in formulating and implementing firm strategies, and hence we expected them to be knowledgeable, as were the CEOs in our study, about constructs of interest to us. In our sample, having been employed by his or her firm for 7.0 years and having 11.6 years of industry experience, the average CEO was 40.4 years of age with 4.5 years of tenure in his or her position. Likewise, having been employed by his or her firm for 5.5 years and having 10.1 years of industry experience, the average CTO was 37.7 years of age with 3.7 years of tenure in his or her position. These statistics and the fact that the CEOs and CTOs in our sample oversee their firms lend further credence to our assertion that these individuals should be reasonably well informed about this study’s focal constructs.

These CEOs’ high levels of tenure also suggest that their social capital (both bonding and bridging) can be reasonably assumed to have already taken effect in the shaping of their firm’s EO. Also, due to the costs of time and effort in building social capital (Burt, 1992, 1993; McFadyen & Cannella, 2004), an individual’s social capital in general does not change rapidly. Therefore, it is reasonable to expect that the CEO’s bonding and bridging social capital as reported at the time of the data collection was accumulated through interactions in prior years, mitigating concerns over reverse causality.

Measures

Entrepreneurial orientation (EO)

We used the commonly used nine-item semantic differential scale developed and validated by Covin and Slevin (1989; please see the appendix). This scale assesses each of the three EO components proposed by Miller (1983)—innovativeness (Items 1, 2, 3), risk taking (Items 7, 8, 9), and proactiveness (Items 4, 5, 6)—but treats EO as a latent, umbrella construct of a firm’s overall entrepreneurial activities. The measure has been applied in a number of prior studies (e.g., Lee et al., 2001; Simsek et al., 2009; Wiklund & Shepherd, 2003, 2005). In our study, we asked the CTO to rate these items in the survey. We employed confirmatory factor analysis (CFA) to examine its validity. The fit indices showed that the measurement model fit the data reasonably well (χ² = 38.741, p < .001; CFI = .968, IFI = .969, RMSEA = .093, SRMR = .054), and all the items have highly significant standardized loadings. Cronbach’s alpha for this measure is .89. For validity check, we also asked the CEO to do the same rating in his or her copy of the questionnaire, which also yielded a high Cronbach’s alpha of .89. The measure from the CTO is highly consistent with that from the CEO (r = .81, p < .001; mean r _wg = .97), and EO rated by the CEO yielded consistent findings in the regression to that rated by the CTO. We choose to report the results based on CTO’s rating to minimize the concern for common method bias. Furthermore, we also asked the CEOs to provide in their questionnaire the percentage of the firm’s business in the past year that fell into either a new product or a new market as well as the number of innovations that the firm had developed in the past year, including product, process, and administrative innovations. EO correlates with the percentage of new business at .357 (p < .001) and correlates with the number of innovations at .388 (p < .001). These significant correlations provide additional convergent validity of our EO scale.

CEO bonding social capital

As an individual’s social capital is reflected in his or her social connections, we followed Collins and Clark’s (2003) method and asked the CEO to report his or her own social connections. We used the nominalist approach to specify the boundary of the CEO’s social capital (Laumann, Marsden, & Prensky, 1983; Wasserman & Faust, 1994). That is, guided by our theoretical concern, the CEO was asked to focus on social ties that are conducive to strategically valuable information and resources.

CEO bonding social capital, as defined earlier, refers to the CEO’s social ties with organizational members across various departments or functional units. This conceptualization indicates that a greater level of bonding social capital involves both a greater number of intrafirm ties and greater tie diversity. Accordingly, we measure bonding social capital as the product of a CEO’s total number of intrafirm ties (adjusted by firm size) and diversity of these ties. In particular, we asked the CEO to identify the number of organizational members in each of the following functional units within the firm with whom he or she interacted for potential, strategically valuable information and resources: R&D, production/manufacturing, marketing/sales, service, administration, and all other functional units. First, we summed these numbers up to indicate the total size of a CEO’s bonding ties. To account for the fact that CEOs of bigger firms are likely to have more internal connections, we not only used firm size for endogeneity control (discussed later in the Analyses and Results section) but also adjusted the total size of a CEO’s bonding ties with the total number of employees of the firm. To do so, we divided the total size of the CEO’s bonding ties by the square root of the firm’s total number of employees. Such adjustment is based on the assumption that given the same networking capability, an actor’s number of ties within a collectivity is positively related to the total number of nodes in the collectivity yet at a diminishing rate (Wasserman & Faust, 1994). We thus had the first component—the total number of CEO bonding ties adjusted by firm size.

Second, we calculated the diversity of CEO bonding ties using Blau’s (1977) index of diversity as 1-Σ (P_i)², where P_i is the percentage of ties in the ith category. The more evenly the CEO’s ties are spread across different functional units within the firm, the higher the index. We then multiplied these two components to create the final measure of CEO bonding social capital. To the extent a CEO has a greater number of intrafirm ties (adjusted by firm size) and these ties are more evenly spread out across different functional units within the firm, the CEO’s bonding social capital increases.

CEO bridging social capital

Procedures to measure CEO bridging social capital were similar, except that we focused on the CEO’s connections outside the firm. As defined earlier, CEO bridging social capital refers to the CEO’s social ties with individuals from a diverse set of external organizational stakeholder groups. We again used two components to create the measure of CEO bridging social capital—the total size of his or her bridging ties adjusted by firm size and tie diversity across different stakeholder groups. Specifically, we asked the CEO to identify the number of individuals in each of the following categories outside the firm with whom he or she interacted for potential, strategically valuable information and resources: customers, suppliers, competitors, partners, industrial authorities, various levels of government and administrative agencies, and banks and other financial agencies. We totaled the number of these contacts to generate the size of CEO bridging ties. Similar to the adjustment we did above to CEO bonding social capital, we divided the total size of CEO bridging ties by the square root of the firm’s total number of employees to account for the fact that CEOs of larger firms are likely to have more external connections as affected by the greater business scope of the firms.

Next, we calculated the second component—the diversity of CEO bridging ties, again using Blau’s (1977) index, 1-Σ (P_i)², where P_i is the percentage of ties in the ith category. A higher diversity index indicates that the CEO’s ties are spread more evenly across different external categories. We hence created the measure of CEO bridging social capital with the product of both components. When the CEO has a greater number of bridging ties outside the firm (adjusted by firm size) and these ties are more evenly spread across external stakeholder groups, the product term as an indicator of CEO bridging social capital will have a higher value.

Environmental instability

While within the broader environment, instability may vary across subenvironments, such as supply-side and demand-side environments (Castrogiovanni, 2002), we follow prior research (Keats & Hitt, 1988) and focus on instability on the demand side by measuring it as the standard deviation of the sales growth of firms in each industry during the past three years. Focusing on the demand side of the environment is especially appropriate in the context of our sample firms, as for these small- to medium-sized firms that are lean on cash, sales are essential in sustaining their growth and entrepreneurial activities (Covin, Slevin, & Covin, 1990). Thus, accessing, acquiring, and mobilizing demand-related information and resources on a timely basis are more relevant to the organizational utility of a CEO’s social capital. In addition, our initial interviews with the CEOs suggested that as high-tech firms, they typically have their own R&D and technological niche, thus having reasonable control of the upstream activities of their products, but that changing customer preferences and demand were a central source of unpredictability for their firms.

The data were obtained from the industrial park administrative offices where we sampled our firms, so instability was calculated out of all the firms across these parks. Ideally, the measure can be based on all firms in each of these industries across China, but it is difficult to get data on sales growth of all other private firms outside these parks. However, we collected data, from the GTA database, on sales growth of all the publicly listed firms in each of these industries in China for the past three years and calculated standard deviations of these growth data in respective industries. The two scores of environmental instability are correlated at .28 (p < .01). We decided to use the score based on all the firms across the industrial parks rather than that based on all the public firms, as firms in our sample were all private firms and their competitive environments resembled more those of their peers in the parks.

Control variables

We first controlled for a number of CEO demographic variables—age, education (a dummy indicating whether or not the CEO has an MBA degree), functional experience (Blau index that calculates the diversity of the CEO’s prior experience based on his or her years of working in respective functions—general management, finance/accounting, marketing/sales, production/operations/supply chain management, engineering/R&D, and administration; cf. Bunderson & Sutcliffe, 2002), and job tenure (number of years he or she had been in the CEO position in this firm). In addition, we included a number of organizational-level and environmental-level controls that impute degrees of managerial discretion (Hambrick & Finkelstein, 1987). In particular, firm age (years since inception) and firm size (sales volume in the prior year), by determining organizational inertia, affect the scope of managerial discretion as internal inertial forces drive the direction of the firm and preclude a CEO’s discretionary choices (J. Li & Tang, 2010). Firm past performance (growth rate over the past three years) influences the latitude of managerial action because it determines the degree of slack organizational resources that managers may dispense (Finkelstein & Hambrick, 1990). Environmental munificence (average sales growth of firms in the same industry during the past three years; Keats & Hitt, 1988) has an impact on the strategic degrees of freedom to CEOs given the resources and opportunities in the environment available to the firm (Finkelstein & Boyd, 1998). Regional environment, as reflected in firm locations (two dummies for south China and west China, with east China as the default category), is also expected to exert an influence on managerial discretion with heterogeneous regional formal institutions (Crossland & Hambrick, 2011).

Analyses and Results

Table 1 presents the means, standard deviations, and correlations for the study’s measures. We performed ordinary least squares regression analysis to test our hypotheses. The highest VIF value from all the regressions is 3.67, which is significantly below the recommended level of 10 (Kleinbaum, Kupper, & Muller, 1988). Table 2 reports the regression results.

Table 1

Descriptive Statistics

Variable	M	SD	1	2	3	4	5	6	7	8	9	10	11
1 Entrepreneurial orientation	4.64	1.11
2 CEO bonding social capital	3.85	1.58	.08
3 CEO bridging social capital	5.53	4.34	.14	−.01
4 Environmental instability	49.92	21.45	−.01	−.09	.16^†
5 CEO age	40.44	6.60	−.06	.25**	.04	−.20
6 CEO education	0.15	0.36	.13	.18*	−.23*	−.00	−.08
7 CEO functional experience	0.55	0.19	−.06	−.02	−.04	−.04	.04	.13
8 CEO tenure	4.49	2.91	.16^†	.34***	−.11	−.09	.38***	.03	.17^†
9 Firm age	6.19	4.41	−.02	.33***	−.19*	−.15^†	.27**	.26**	.15^†	.34***
10 Firm size	3.39	1.89	.10	.41**	−.43***	−.28**	.16^†	.31***	−.05	.31***	.59***
11 Firm past performance	35.45	38.38	.14	−.07	−.05	−.03	.00	−.05	−.27**	−.13	−.28**	−.17
12 Environmental munificence	35.72	12.56	.05	.10	.14	.40***	.04	−.10	−.33***	−.00	−.04	−.12	.15^†

†

p < .1. *p < .05. **p < .01. ***p < .001.

Table 2

Regression Results on Entrepreneurial Orientation (EO)

	1		2		3		4		5
Constant	5.82	(0.81)***	5.38	(0.80)***	5.54	(0.80)***	5.86	(0.78)***	5.92	(0.79)***
CEO age	−0.04	(0.02)*	−0.04	(0.02)*	−0.040	(0.016)*	−0.04	(0.02)**	−0.04	(0.02)**
CEO education	0.37	(0.28)	0.48	(0.28)^†	0.64	(0.29)*	0.53	(0.28)^†	0.50	(0.29)
CEO functional experience	−0.45	(0.60)	−0.37	(0.59)	−0.46	(0.58)	−0.43	(0.57)	−0.45	(0.57)
CEO tenure	0.08	(0.04)*	0.09	(0.04)*	0.10	(0.04)**	0.10	(0.04)**	0.10	(0.04)**
Firm age	−0.04	(0.03)	−0.05	(0.03)^†	−0.05	(0.03)	−0.05	(0.03)^†	−0.05	(0.03)
Firm size	0.12	(0.07) ^†	0.22	(0.08)**	0.20	(0.08)*	0.00	(0.00)*	0.15	(0.08)^†
Firm past performance	0.00	(0.00)^†	0.00	(0.00)^†	0.00	(0.00)*	0.00	(0.00)*	0.01	(0.00)**
Firm location—South	−0.1.07	(0.26)***	−1.14	(0.27)***	−1.09	(0.26)***	−1.05	(0.26)***	−1.04	(0.26)***
Firm location—West	−0.53	(0.25)*	−0.49	(0.29)^†	−0.44	(0.29)	−0.57	(0.28)*	−0.57	(0.28)*
Environmental munificence	0.01	(0.01)	0.01	(0.01)	0.01	(0.01)	0.01	(0.01)	0.01	(0.01)
Environmental instability	−0.00	(0.01)	−0.00	(0.01)	−0.01	(0.01)	−0.01	(0.01)	−0.01	(0.01)
CEO bonding social capital			−0.13	(0.08)^†	−0.03	(0.09)	0.01	(0.09)	0.02	(0.09)
CEO bonding social capital–squared					−0.04	(0.02)*	−0.04	(0.02)^†	−0.05	(0.02)^†
CEO bridging social capital			0.06	(0.03)*	0.05	(0.03)*	0.03	(0.03)	0.03	(0.03)
Env instability × CEO bonding SC							0.00	(0.00)	0.01	(0.00)
Env instability × CEO bonding SC–squared									−0.00	(0.00)
Env instability × CEO bridging SC							0.00	(0.00)**	0.00	(0.00)**
R ²	.26		.31		.33		.39		.39
df	11, 106		13, 104		14, 103		16, 101		17, 100
F (R²)	3.33***		3.54***		3.67***		4.03***		3.82***
ΔR²			.05		.03		.06		.00
df			2, 104		1, 103		2, 101		1, 100
F (ΔR²)			3.74*		4.04*		4.72*		0.61

Note: Unstandardized coefficients reported, with standard errors in parentheses, two-tailed test.

†

p < .1. *p < .05. **p < .01. ***p < .001.

Model 1 includes all the control variables and environmental instability. Our results indicate that CEO age is negatively related to EO, which suggests that younger CEOs are more likely to lead their firms to undertake entrepreneurial activities. As in prior works (Simsek, 2007), CEO tenure is positively related to EO, as with more experience at the job, the CEO is more capable of taking strategic risks and pursuing entrepreneurial initiatives. Besides, firms from east China exhibit more EO than those from south and west China, which is consistent with the general observation that east China is the more innovative economic zone in China.

In Model 2, we include the linear effects of the variables of CEO bonding and bridging social capital, and in Model 3 we include the square term of bonding social capital to test its curvilinear effect. Based on Model 3, the linear term of CEO bonding social capital is not significant (b = –.03, ns), and its square term is negative and significant (b = –.04, p < .05). The result supports Hypothesis 1 that CEO bonding social capital has an inverted-U relationship with EO. In Model 3, CEO bridging social capital has a significant and positive relationship with EO (b = .05, p < .05). As such, Hypothesis 2 is also supported. Models 4 and 5 examine the moderating effects of environmental instability. Model 4 includes the interaction between environmental instability and the two linear terms of CEO social capital. Model 5 includes the interaction between environmental instability and the square term of CEO bonding social capital. Based on Model 5, environmental instability does not moderate the curvilinear relationship between CEO internal social capital and EO (b = –.00, ns). Thus, Hypothesis 3 is not supported. However, the result shows that environmental instability, as predicted, does strengthen the positive relationship between CEO bridging social capital and EO (b = .00, p < .01). Thus, Hypothesis 4 is supported. Altogether, we have found support for three of our four hypotheses.

Robustness Checks

Our theory and findings suggest that CEO social capital is systematically related to firm EO, but a reverse relationship is conceptually plausible—that is, a firm’s EO can shape the nature and amount of a CEO’s social capital. Consistent with prior research that examines the effect of upper-echelons social capital on firm performance (Collins & Clark, 2003; Peng & Luo, 2000), our stance is that CEO bonding and bridging social capital are largely exogenous variables in their association with firm EO due to the “sticky” and stable nature of executives’ social ties. Building interpersonal ties, especially at the executive level, requires time and effort (Burt, 1992, 1993; McFadyen & Cannella, 2004; Nahapiet & Ghoshal, 1998) as well as trust, reciprocity, and personal attachments that make them consistent, predictable, and repeatable (Granovetter, 1985; Uzzi, 1997), even when there are pressures to dissolve them (Seabright, Levinthal, & Fichman, 1992). Particularly in China, our empirical context, CEOs’ connections often derive from kinship, classmates, or friendships that are cultivated through long-term reciprocity of favors based on mutual interest and benefit (Yang, 1994), and CEO social capital is likely to gradually develop and evolve due to a high level of intimacy, reciprocal services, and trust that social ties entail (Xin & Pearce, 1996).

Still, to address the concern that CEOs with greater levels of social capital are drawn to certain situations and/or some conditions particularly allow them to develop greater levels of social capital (Ramachandran & Ramnarayan, 1993; Zhao & Aram, 1995), we used Chatterjee and Hambrick’s (2007) and Hambrick’s (2007) method to correct for endogeneity. In particular, we regressed CEO bonding and bridging social capital respectively on variables that may potentially influence them, including firm EO, environmental instability, environmental munificence, CEO age, education, functional experience, tenure, firm age, firm size, and firm past performance. Out of these variables, only CEO tenure (p < .05) and firm size (p < .05) significantly predicted CEO bonding social capital and only firm size (p < .001) significantly predicted CEO bridging social capital. These results are consistent with our expectation that a CEO develops more bonding social capital within the firm when he or she has been in office longer and when the firm is bigger. Moreover, a CEO of a bigger firm tends to develop more social capital outside the firm due to the greater business scope of the firm. Following Chatterjee and Hambrick (2007), we calculated each CEO’s predicted bonding and bridging social capital scores using the regression coefficients for the significant variables and included these values as endogeneity controls in our analyses. With the correction for the endogeneity of the two CEO social capital variables, the findings regarding the hypothesized relationships remain unchanged. In particular, we have found a curvilinear relationship between CEO bonding social capital and firm EO (β_{linear term} = –.04, ns; β_{square term} = –.22, p < .05) and a positive association between CEO bridging social capital and firm EO (β = .21, p < .05). We have also found that environmental instability does not moderate the curvilinear effect of bonding social capital (β = –.12, ns) but strengthens the positive effect of bridging social capital (β = .25, p < .01).

As a complementary test, we followed Landis and Dunlap’s (2000) method to have an empirical test on the possible reverse causality between firm EO and CEO social capital. In particular, we put EO as the independent variable and tested the interaction between environmental instability and EO in the two equations where CEO bonding and bridging social capital were the dependent variables, respectively. We did not find this reverse interaction effect significant in either equation, which further alleviates the concern for reverse causality empirically.

Given that we articulate different theoretical mechanisms of each facet underlying EO, we also performed tests of our hypotheses on innovativeness, risk taking, and proactiveness respectively. We found that CEO social capital, together with environmental instability, exhibits a similar pattern of hypothesized effects on each of them except that risk taking is more susceptible to CEO bridging social capital than innovativeness and proactiveness. More specifically, CEO bonding social capital has an inverted-U relationship with innovativeness (β_{linear term} = .01, ns; β_{square term} = –.20, p < .1), risk taking (β_{linear term} = –.01, ns; β_{square term} = –.27, p < .05), and proactiveness (β_{linear term} = –.02, ns; β_{square term} = –.22, p < .1). CEO bridging social capital has a positive association with risk taking (β = .30, p < .01), but not with innovativeness (β = .09, ns) or proactiveness (β = .09, ns). In addition, environmental instability does not moderate the effect of CEO bonding social capital on any of the individual EO facets (innovativeness, β = –.06, ns; risk taking, β = .01, ns; proactiveness, β = –.18, ns), but strengthens the effect of CEO bridging social capital on all these components (innovativeness, β = .29, p < .01; risk taking, β = .24, p < .01; proactiveness, β = .26, p < .01). Overall, these results provide evidence that the three facets of EO can be differentiated in terms of their concrete mechanisms but at the same time exhibit comparable patterns of effects and thus, consistent with Miller (1983), can be integrated under the umbrella construct of EO.

In hypothesizing the linear positive, rather than curvilinear, relationship between CEO bridging social capital and firm EO, we have discussed the high costs of cultivating and maintaining ties with external entities. In the spirit of examining the extent to which such costs affect the influence of CEO bridging social capital, we empirically explored the curvilinear effect of CEO bridging social capital and did not find it significant. Again, one admittedly speculative conjecture is that CEO bridging social capital is rarely observed at very low levels (where benefits are below costs) or very high levels (where high costs prevent it from being overbuilt), engendering an observed liner positive effect on EO.

Finally, to explore whether the different types of CEO social capital are complementary or substitutable, we tested and did not find a significant interaction between CEO bonding and bridging social capital. This suggests that they have an independent impact on firm EO, as predicted by our hypotheses.

Discussion and Conclusion

Departing from the tradition of explaining firm EO using a CEO’s psychological orientations, personality traits, and demographic givens, our model examines the impact of CEO social capital on EO. Our theory and findings demonstrate that CEO social capital from internal and external social systems has different effects on EO and that these effects themselves are contingent on environmental instability. In particular, CEO bonding social capital, which involves his or her social connections with organizational members from various functional units from the firm, has a positive influence on EO until reaching a threshold and then reverts to a negative effect. In contrast, CEO bridging social capital, which involves his or her social ties with diverse external stakeholders outside the firm, has a linear positive impact on EO. Moreover, we find that the impact of CEO bridging social capital on EO is more pronounced in a highly unstable environment. The specificity, variability, and conditionality of influences that we theorize and find on CEO social capital make contributions to the literatures.

Our focus on executive social capital is an important addition to the prevalent focus among scholars examining the effect of individual-level characteristics of top executives on EO (e.g., Begley & Boyd, 1987; Ling et al., 2008; Miller & Toulouse, 1986; Simsek, 2007; Simsek et al., 2009). These previous studies have concluded that as the firm’s primary gatekeeper and decision maker, the CEO has a critical influence on the firm’s entrepreneurial pursuits. Yet using a social capital lens, such a view on top executives is not sufficient to understand his or her role in a firm’s strategy making process, as the properties of an individual’s social connections render him or her advantages (or disadvantages) beyond his or her individual-level characteristics. As an aside, the preponderance of upper-echelons studies has employed various versions of demography theory, which suggests that readily available demographic attributes capture managerial cognition and entrepreneurial proclivities. To numerous scholars, however, this distal examination creates a theoretically impoverished understanding and limits construct clarity (e.g., Lawrence, 1997; Priem, Lyon, & Dess, 1999). Our focus on the “substantive” CEO social capital constructs potentially helps provide a more proximal understanding of executive influence on EO.

In addition, our study enriches the emerging literature on executive social capital by theorizing on the nature and implications of different types of executive social capital for firm EO. While prior literature has pointed out that social capital can take a “bonding” role within collectivities and a “bridging” role with external entities (Adler & Kwon, 2002), to our knowledge no research has employed such distinct roles of executive social capital in organizational studies or empirically measured these two types of social capital. In this study, we have developed novel measures for both CEO social capital constructs by simultaneously considering the size of the social ties, adjustment by firm size, and tie diversity. This can help pave way for more future studies on executive social capital.

Moreover, our study contributes to the social capital and network perspective of EO (Simsek et al., 2003; Yang & Dess, 2007). As the essence of EO lies in entry into new product and/or market arenas (Lumpkin & Dess, 1996), some researchers have taken the social capital and network lens to study how such opportunities are identified, as well as the information and resource flows that affect the firm’s entrepreneurial strategy making and execution (e.g., Baum & Oliver, 1991; Shane & Cable, 2002). So far, researchers adopting such a perspective mainly have examined the implication of firm-level social capital and networks, that is, the firm’s relationship with its customers, partners, suppliers, competitors, and other relevant institutions. However, based on the upper-echelon reasoning (Hambrick & Mason, 1984), forging such firm-level networks and leveraging information and resources along them are influenced by and often at the discretion of top executives of the firm. Also, it is desirable that information input for the strategic decisions be rich and private, and personal connections are usually better channels than formal interfirm transactional channels in this regard (Aguilar, 1967; Athanassiou & Nigh, 1999). As such, social connections of top decision makers can be seen as a more proximal mechanism in affecting a firm’s entrepreneurial strategy making and behaviors, and thus provide an enhanced understanding for the effect of firm-level social capital and networks on EO.

This article also adds to the literature on firm EO by advancing specific mechanisms by which CEO social capital shapes each of its underlying facets. On one hand, researchers have generally acknowledged that EO encompasses multiple dimensions (Covin & Lumpkin, 2011). On the other hand, with very few exceptions that study EO dimensions individually based on Lumpkin and Dess (1996; Lumpkin & Dess, 2001; Richard, Barnett, Dwyer, & Chadwick, 2004), prior EO arguments generally remain at the latent construct level rather than dimension specific. Our study complements these efforts by treating EO as a latent construct while providing direct and concrete theoretical arguments for the effects of CEO social capital on its underlying components—innovativeness, risk taking, and proactiveness.

Having examined the importance of CEO social capital for firm EO, we would be remiss if we also did not call attention to the broader ongoing debate on social capital as private goods (e.g., Burt, 1997; Lin et al., 1981) versus public goods (e.g., Coleman, 1990; Fukuyama, 1995). The former researchers view social capital as individual assets with private benefits accrued to the individual holder of social capital, whereas the latter ones view social capital as an attribute of a social unit with public benefits (Leana & Van Buren, 1999). In this article, given the unique role that the CEO plays within the firm, especially in SMEs (Lubatkin et al., 2006), we show how an individual’s social capital as “private” goods can generate “public” benefit for the organization. Yet, while not directly examined nor observed in our study, it is possible that such “private” goods may also generate “organizational” harm. For instance, through social connections the CEO may get involved in the boards of other firms to increase personal compensation (Belliveau, O’Reilly, & Wade, 1996; Geletkanycz et al., 2001), or join various organizations and appear in the media for personal benefits and hubris (Hayward & Hambrick, 1997; Hiller & Hambrick, 2005). Future research is necessary to fully understand this possible substitution effect and multifaceted impact of CEO social capital on the firm.

While we have taken measures to ameliorate concerns over informant bias, nonresponse bias, common method variance, and measurement error, our study is not without limitations, which, in turn, present opportunities for future research. First, the cross-sectional nature of our study raises concern for reverse causality. Although we have theoretically and empirically addressed it earlier in the article, we are still mindful of the limits that such a design places on our confidence in the interpretations offered. In this regard, a longitudinal design is desired in the future to more rigorously examine the causal effect, and to examine the likely dynamic relationship between CEO social capital and EO in the long run. In addition, researchers have pointed out that managers are bounded by the scope of their discretionary power in affecting firm outcomes (Hambrick & Finkelstein, 1987). Thus, the degree to which such discretion varies may influence the relationship between CEO social capital and EO. In this regard, environmental instability can be considered as imputing degree of managerial discretion. Yet other organizational and environmental indications of managerial discretion may also be examined in future research to further enhance the understanding of the impact of CEO social capital.

As far as the generalizability of the findings is concerned, our sample consists of private SMEs, in which the CEO’s effect on firms is easier to observe (Lubatkin et al., 2006), but future research may examine such relationships in larger firms and firms of other types. Future replications and extensions of our tests in different national, institutional, and cultural contexts might also be needed to attain more complete and robust insights into the relationship between CEO social capital and EO. Also, in computing environmental instability, we focused on the demand side of the environment for this unique sample. We recognize that due to the multifaceted nature of environmental dynamism (Castrogiovanni, 2002), other subenvironments, such as the supply side, may also be considered when generalizing the findings in the future research.

In concluding, although researchers have examined the role that CEOs play in their firms’ EO, most have examined the various facets of CEOs’ individual characteristics (“who CEOs are”). Enriching this focus, our study built and tested a social capital model of EO (“who CEOs know”), which suggests that EO is not only differentially influenced by the CEO’s bonding and bridging social capital but also that this influence is contingent on environmental instability. As firms and their executives become increasingly interconnected, adopting network-based models of cooperation and competition, social capital is likely to become a centrally important source of executive influence on the firm’s entrepreneurial outcomes. Our study represents a first step toward understanding the link between CEO social capital and EO, and thus future research on this important nexus is warranted.

Footnotes

Appendix

Acknowledgements

This article was accepted under the editorship of Deborah E. Rupp. We are very thankful to action editor Sucheta Nadkarni and the anonymous reviewers for their valuable and thoughtful comments during the review process. We also thank Ken Smith, Haibin Yang, and Ciaran Heavey for their helpful suggestions for earlier drafts of the article. This work was supported, in part, by a grant from the Connecticut Center for Entrepreneurship & Innovation (CCEI).

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