LAUSR

In this paper, we develop a theoretical model to explain the impact of social capital (defined at the firm level) on individual firm performance and derive a critical optimal threshold for firms to invest in social capital. The theoretical model we propose reveals how social capital, human capital, and physical capital simultaneously affect firm performance under the main assumption of a decreasing function of social capital on unit cost of physical capital. Our theoretical model is then estimated using unique firm‐level longitudinal data from Vietnam for the period 2005–2015. Using a control function approach in a quantile regression framework, we attempt to establish the causal impact of social capital on firm performance. Our empirical results point to a range of revenue in which investment in social capital is efficient and to evidence suggesting that the role of social capital decreases when firms become richer.