Changing for the better? Exploring the relationship between entrepreneurial network change and changes in firm performance.

It has become increasingly recognised that the social networks in which firms are active should also be taken into account in studies focused on firm competitiveness. Through their network contacts entrepreneurs can gain resources they lack and this can be particularly important for small- and medium-sized firms, as these firms often experience a lack of firm resources due to their small firm size (Cooke, 2007). In this paper we focus on a particular type of small-sized entrepreneurial activity, namely firms located in residential neighbourhoods in the Netherlands. Several studies have found a positive relationship between a firm’s network and firm performance (Stam et al. 2014). But much less is known regarding the direction of this relationship and with this paper we hope to take a small step towards solving this question. Several authors have called for additional longitudinal research on the relationship between firm networks and firm performance, as many studies primarily build on cross-sectional data and therefore cannot control for reversed causality issues (Stam et al. 2014). Our paper adds to the existing literature, as we adopt a dynamic perspective with which we try to give additional insights into the relationship between changes in network size and changes in firm performance. Panel data from two waves of the Survey on the Social Networks of Entrepreneurs (in 2008 and 2013) are used. The panel consists of 180 entrepreneurs for whom we have information in both years on their social networks and firm performance. Network size is defined as network contacts either offering support on business issues or being firms with whom an entrepreneur cooperates on a regular basis. Firm performance is measured using firm turnover (i.e. sales) figures.In the analyses both multilevel- and fixed effects models are used, with both types of models giving similar results. The results show that firm performance is positively influenced by the size of the entrepreneurial network as well as by a number of other variables. Network size on the other hand is influenced only by firm performance. Although adding a piece to the puzzle, our outcomes still leave us with many unsolved issues for future research regarding the relationship between firm networks and firm performance.References:Cooke,P. (2007). Social capital, embeddedness, and market interactions: An analysis of firm performance in UK regions. Review of Social Economy,65(1),79–106. Stam,W., Arzlanian,S., & Elfring,T. (2014). Social capital of entrepreneurs and small firm performance: A meta-analysis of contextual and methodological moderators. Journal of Business Venturing,29(1),152–173.