The influence of social capital, networks and trust in investor decision-making : a framework to understand the entrepreneurial environment

Abstract

The research was undertaken to create a better understanding of the entrepreneurial decision-making environment. Discovering potential business or investment opportunities is imperative for the entrepreneur in an environment where access to private information relies on its transfer between individuals. The aim was to hypothesise a clearer understanding of how the key elements of social capital, networks and trust in the entrepreneurial environment influence potential investors in their evaluation of the financial markets when arriving at investment decisions. The need for the research was driven by the value it would add to entrepreneurs in the context of advancing their businesses. As well as to investment professionals, who strive to appeal to and create solutions for the entrepreneurial sector, with the goal of managing their wealth. The researcher implemented a deductive research approach where tests were conducted based on the primary constructs, taking into account a review of the literature and the proposed hypotheses. A quantitative and cross-sectional design was adopted in an explanatory study which investigated the causal relationships between key variables. The research could therefore be seen as a quasi-experimental design where data from 219 respondents was collected and a complete, useable sample of 199 respondents was analysed. Entrepreneurs and investment professionals are able to use the model (Figure 12) which emerged from the findings. This conceptual framework summarises the core findings and depicts the inter-connectedness of the primary constructs and the factors that influence them. Social capital, networks and trust exist in a social ecosystem, which provides insight into how these major elements interact to influence decision-making. The outcome of this research could aid potential investors to interpret the social influences in the entrepreneurial environment when making decisions. Investment professionals could also have a unique insight into the influencing factors in entrepreneurial decision-making and adopt appropriate strategies to influence decisions accordingly.