When Paperwork Isn't Proof: How social networks unlock capital

Dr Hannah TH Nguyen and Prof Huu Nhan Duong, 2026

Purpose

Capital markets systematically underserve borrowers whose quality cannot be verified through “hard” information – audited financial statements, credit histories, public disclosure. Small businesses and start-ups often risk being priced out of finance, not because they lack merit, but because they lack paperwork and a track record. Dr Hannah Nguyen's research asks whether social capital – social norms and networks around a firm or its financiers – can substitute for missing hard information, whether by making a borrower's quality visible to lenders through community ties, or by giving financiers better information to select and support the firms they back.

Practice

Dr Nguyen pursued the question at both ends of the capital market. With Huu Nhan Duong and Van Hoang Vu (Journal of Financial Research, 2025), she analysed 335,539 US Small Business Administration loans (2008–2015) matched to a county-level social capital index constructed from data on participation in social and religious organisations, to identify the causal effect of social capital on loan pricing and performance. With Giang Nguyen (The British Accounting Review, forthcoming), she mapped the social networks of 458 major venture capital (VC) firms across 36 countries, linking BoardEx data on VC partners' shared education and employment histories to VentureXpert VC deal data from 2000 to 2020, and used network-centrality measures to test whether and to what extent VCs' social networks influence their investment decisions and performance.

Output

Both studies show social capital operating as valuable soft information. Small businesses in higher-social-capital counties pay lower loan spreads and default less often, with the largest effects precisely where information asymmetry is greatest: fewer banking relationships, non-corporate borrowers, and counties with few local newspapers. Well-networked VC firms are more likely to lead syndicates and deliver stronger performance, as their social networks bring better access to deals and enable more value-added services for their portfolio companies. Published in well-regarded international journals, the studies provide causal evidence that information embedded in social networks might substitute for hard information in two different financing settings.

Outcome

For the primary stakeholders, including venture capitalists, banks and small business owners, the research reframes network position and community embeddedness as valuable assets. The findings offer lenders and investors an evidence-based rationale for incorporating soft information in financing and syndication decisions, potentially widening access to finance for informationally opaque but creditworthy small businesses and start-ups. Small businesses in socially connected communities gain grounds to expect more favourable financing terms, while those in regions with lower social capital have a clear incentive to invest in local networks.

Impact

More broadly, the two studies provide policymakers with evidence that social infrastructure, including local associations, local communities and professional networks, can serve as levers for inclusive economic development. By demonstrating that information embedded in social networks is causally linked to financing outcomes, the research opens an agenda for studying other underserved segments of the economy, advancing the Sustainable Development Goals 8 and 10 vision of inclusive financial systems.