The Roles of Regional Intercorporate Networks in Firm Failure Among Colombian SMEs

We examine how regional directorship networks are associated with firm failures. We expand board interlock research from large public corporations to mostly private, small- and medium-sized enterprises (SMEs). Building on previous director interlock research, social- capital theory, and the notion of geographically-localized social capital, we theorize that for SMEs, within-region board interlocks and the firm’s relative position in the regional directorship network decreases its hazard of failure. We also predict that SME interlocks to within-region boundary spanners and to extra-region boundary spanners are both negatively associated with the hazard of failure. Finally, we propose that the survival benefits associated with membership in a strong regional directorship network are not limited only to enterprises with interlocks, but also extend to those without regional interlocks. That is, we posit that the benefits of a strong regional directorship network spill over to all firms operating within the region. We use a sample of some 25,000 public and private firms from Colombia between 2000 and 2009 to test our hypotheses, finding strong empirical support for our hypotheses.