The role of human and social capital and entrepreneurial orientation for small business performance in a transitional economy

We develop a model of small business performance in transitional economies in which owners' human and social capital are expected to be directly and positively related to the firm's entrepreneurial orientation, and all three are hypothesised to have a positive impact on performance. In transitional economies, these factors are particularly salient because of the scarcity of resources and the lack of entrepreneurial tradition and adequate institutional infrastructure. The model is tested with structural equations analysis of data from 160 owners of small businesses in Bulgaria. We find that social capital is related to entrepreneurial orientation, and both are positively associated with business performance. This means that social capital is an important initial resource endowment in transforming economies, and small business owners need to establish and develop connections with partners, suppliers, customers, and institutions. Also, they should seek to identify opportunities and develop proactive and innovative strategies.