Social trust and new firm formation: a regional perspective

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Abstract

This paper aims to contribute to the analysis of informal institutions on entrepreneurship. In particular, we follow a regional perspective to explore the role of social trust as a determinant of new firm formation, enhancing the flow of information and knowledge exchange across spatially embedded relational structures that underpin entrepreneurial processes. Also, we argue this bridging effect of social trust may be subdued in regions with higher levels of economic development characterised by stronger quality of governance and more defined entrepreneurial ecosystems. Combining data from Eurostat and the European Social Survey for over 200 regions across nine EU countries, the paper provides novel empirical evidence that social trust plays a significant role in fostering the formation of new firms. At the same time, the results indicate that the strength of formal institutions and the regional economy exert a critical moderating effect as the importance of social trust on new firm formation progressively increases in regions characterised by decreasing levels of economic development.

Details

Original languageEnglish
JournalSmall Business Economics
Early online date23 Sep 2020
Publication statusE-pub ahead of print - 23 Sep 2020