How does social capital impede innovation? The mediating role of social decision-making constraints in a multilevel model

Various conceptual and empirical studies demonstrate that social capital is a powerful factor in fostering innovation. However, most research focuses solely on the benefits of social capital without considering potential downsides. Further research is needed to consider potential risks or negative consequences of social capital to develop a more objective understanding of social capital’s potential negative outcomes. Moreover, social capital studies tend to examine social capital at only a single level, such as at the individual-level or firm-level, neglecting the effects operating simultaneously at both levels. This research develops a multilevel model to hypothesize social decision-making constraints as the mediator between social capital and firm innovation. Furthermore, this study also considers culture as a moderator that exerts moderating effects on the relationship between social capital and social decision-making constraints. Social capital and social decision-making constraints, as well as culture are conceptualised as operating at both the individual-level and the firm-level, while innovation operates solely at the level of the firm. A survey is used to collect multilevel data from individuals and firm managers. Survey items from prior studies are adapted for this research. The sample is comprised of 1,007 employees working at 102 high-tech firms in China’s Tianjin Economic-Technological Development Area (TEDA). Multilevel structural equation modelling (MSEM) is used to analyse the data. The results confirm the negative mediating role of social decision-making constraints, revealing that social capital influences social decision-making constraints at both the individual-level and firm-level, which in turn, impedes firm-level innovation. When compared to previous studies, the findings offer a more comprehensive and precise understanding of the multilevel impacts of social capital on firm innovation by providing evidence of the negative mediating role of social decision-making constraints. In contrast to the dominant view in the literature that social capital is always a positive phenomenon, social capital can potentially harm firm innovation performance. From the managerial perspective, the supported hypotheses suggest that social capital is a precondition for innovation, but a clear understanding of the costs and potential risks of investing in social capital needs to be weighed carefully against its potential benefits.