The Negative Effects of Social Capital in Organizations: A Review and Extension


Gurumurthy Kalyanaram


Numerous studies have examined the positive effects of social capital in organizations, whereas the possible negative effects have attracted considerably less scholarly attention. To rectify this imbalance, this paper first undertakes a rigorous review of the published scholarly empirical evidence pertaining to the negative effects of social capital in organizations through a search of Web of Knowledge and Scopus, and then enumerates six potentially negative effects arising from increased levels of social capital. Our analysis focuses on negative effects arising from bonding social capital and those arising from dense networks and closure, advancing new theory to elucidate the generative mechanisms that give rise to the proposed negative effects. Finally, we identify potential moderators of the negative effects thus theorized. Using the lens of social identification theory, we argue that dysfunctional identification processes restrict the processing of information and stimulate over commitment to established relationships, diluting in turn the dialectical process, and inhibiting individual learning within organizations, culminating in groupthink, the postponement of structural adjustments, the non-rational escalation of commitment, and the
blurring of firms’ boundaries. Our analysis thus furthers the agenda of a more balanced inquiry into the effects of social capital in organizations.


The notion of social capital (SC), first introduced by Coleman (1988), has attracted significant scholarly attention in recent years. The core insight of this body of work is that networks of relationships and connections constitute an important resource for the conduct of social affairs (Burt 1997; Kostova and Roth 2003;Nahapiet and Ghoshal 1998; Portes 1998; Uzzi 1996), affording their members, “collectivity-owned capital, a “credential” which entitles them to credit, in the various senses of the word” (Bourdieu 1986: 249). An impressive volume of evidence supports SC theory’s central predictions (for recent overviews, see Kwon and Adler, 2014; Lee 2009; Portes and Vickstrom, 2011). Inter alia, higher levels of SC have been associated with:(a) greater career success and executive compensation (Belliveau, O’Reilly, and Wade 1996), (b) knowledge access, inter-unit resource exchange, and product innovation (Huggins 2010; Maurer, Bartsch, and Ebers 2011; Pittaway et al. 2004; Tsai and Ghosal 1998; Zheng 2010) and intellectual capital creation (Nahapiet and Ghoshal 1998), (c) the effectiveness of workgroups (Oh, Chung, and Labianca 2004), and (d) superior managerial (Moran 2005) and organizational (Acquaah 2007; Batjargal 2003) performance.

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