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The effects of internal locus of control

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on entrepreneurship: the mediating
mechanisms of social capital and
human capital
a b b
Chan Hsiao , Yi-Hsuan Lee & Hsiang-Heng Chen
a
Department of Management Science, National Chiao-Tung
University, Hsinchu, Taiwan
b
Department of Business Administration, National Central
University, Jhongli City, Taiwan
Published online: 18 Aug 2015.

To cite this article: Chan Hsiao, Yi-Hsuan Lee & Hsiang-Heng Chen (2015): The effects of
internal locus of control on entrepreneurship: the mediating mechanisms of social capital
and human capital, The International Journal of Human Resource Management, DOI:
10.1080/09585192.2015.1060511

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 The International Journal of Human Resource Management, 2015
http://dx.doi.org/10.1080/09585192.2015.1060511

The effects of internal locus of control on entrepreneurship: the

mediating mechanisms of social capital and human capital
Chan Hsiaoa, Yi-Hsuan Leeb and Hsiang-Heng Chenb*
a
Department of Management Science, National Chiao-Tung University, Hsinchu, Taiwan;
b
Department of Business Administration, National Central University,
Jhongli City, Taiwan
This paper proposes the research framework that locus of control enhances
entrepreneurship through the mediating mechanisms of increased social capital in
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interpersonal networks and improved human capital in personal development.

We adopted structural equation modeling to examine the research hypothesis. The
research participants comprised managers from 14 enterprises in China; a total of 1002
valid questionnaires were collected. The results revealed that social and human capital
mediate the effect that internal locus of control exerts on entrepreneurship. This study
provides the following research contributions: first, the findings address the gaps in
previous studies regarding the effect that a single dimension (i.e. personality traits)
produces on entrepreneurship. Second, by employing the social exchange and human
capital theories, we integrated interpersonal and individual perspectives into the
research framework to explore factors affecting entrepreneurship, identifying that
social and human capital are key-mediating mechanisms through which locus of
control influences entrepreneurship.
Keywords: entrepreneurship; human capital; locus of control; mediating effect; social
capital

Introduction
Entrepreneurship, a focal topic of various research fields in recent years, is a crucial
activity that facilitates the rapid development of a countrys economy (Timmons &
Spinelli, 2002). In China, small- and medium-sized enterprises comprise 97% of all
enterprises and are the primary driving force of economic growth (Lo, Wang, & Hsu,
2007). Overall, these trends reveal that conducting research on entrepreneurship and
understanding how entrepreneurial ventures can succeed is vital (Giannikis & Nikandrou,
2013). Covin and Slevin (1989) defined entrepreneurship as proactively solving problems,
assuming risks and adopting innovative processes to facilitate developing novel ideas for
creating business value. Rotter (1954) explored personality traits using the concept of
internal and external locus of control, asserting that people with an internal locus of
control believe that success and failure depend on the amount of effort invested and that
they can control their fate. By contrast, people with an external locus of control believe
that their fate is determined by chance or luck and not within their control (Lii & Wong,
2008). Roberts (1991) and Tsai, Hsieh, Lee, and Hsu (2008) believed that people
with an internal locus of control strive to develop and improve their competences and
actively solve problems, thereby exhibiting a higher level of entrepreneurship. However,
despite the numerous studies conducted regarding internal locus of control, the
definitive effects that internal locus of control has on entrepreneurship remain unverified

*Corresponding author. Email: mikenrvs@gmail.com

q 2015 Taylor & Francis

 2 C. Hsiao et al.

(Chen & Yen, 2012). Therefore, the first aim of this study was to explore the effect that
internal locus of control exerts on the development of entrepreneurship.
Research has indicated that although entrepreneurs in various enterprises possess the
qualities of an entrepreneur, most have failed in operating businesses (Chen & Yen, 2012).
Conversely, those who lack entrepreneurial personality traits perform effectively in
business operation; for example, many Chinese entrepreneurs are kind and gentle, traits
that are uncharacteristic of entrepreneurs, but they continually exhibit excellent business
performance during entrepreneurial processes (Chen & Yen, 2012). This finding indicates
that entrepreneurship is influenced by factors other than personality traits (Mitchell et al.,
2002). Therefore, in contrast to previous scholars who asserted that only internal locus
of control influences entrepreneurship, we contend that locus of control influences
entrepreneurship through various key mediators (Brandstatter, 2011).
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According to the social exchange theory developed by Blau (1964), the exchanges
between people are either economic or social exchanges. Luthans et al. (2006) indicated
that compared with people with an external locus of control, people with an internal
locus of control tend to positively accept challenges, overcome difficulties and resolve
problems through social exchanges (i.e. seeking assistance from contacts or experts in
their interpersonal networks to obtain additional social capital). Establishing interpersonal
relationships is vital, particularly in Chinese society, in which relationships and networks
are valued highly because they enable establishing amicable relationships and
compensating for personal weakness (Bian & Ang, 1997). To execute entrepreneurial
ventures, entrepreneurs must possess suitable personality traits and obtain support by
employing social capital and network connections, thereby enhancing entrepreneurship
(Burt, 1992; Chen & Yen, 2012). Based on these assertions, the second aim of this study
was to explore the mediating effect of social capital on the relationship between an internal
locus of control and entrepreneurship.
Schultz (1961) developed the human capital theory, in which human capital refers to
professional knowledge, experience, education, techniques and capabilities (Hansen &
Alewell, 2013). Using human capital effectively can boost personal strengths, increasing
peoples competitiveness in an enterprise (Lakshman, 2014). In addition, Chinese society
emphasizes the cultivation of skills, and the accumulation of human capital is deemed a
vital component of personal skills and the ability to make a living (Lu, 2006). Johnson
(1980) stated that compared with people with an external locus of control, people with an
internal locus of control exhibit higher achievement motivation; consequently, they are
more willing to learn and enhance their capabilities and knowledge when encountering
challenges. Skilled and competent entrepreneurs are more likely to obtain resources that
enhance their entrepreneurial performance and competitiveness (Elfring & Hulsink,
2003). Thus, the human capital available to entrepreneurs is a critical factor determining
the success or failure of entrepreneurial ventures (Ho, Wilson, & Chen, 2010) and
increasing human capital can positively affect entrepreneurship (Stuetzer, Obschonka, &
Schmitt-Rodermund, 2013). Based on these assertions, the third aim of this study was to
explore the mediating effect of human capital on the relationship between an internal locus
of control and entrepreneurship.
In summary, previous studies have generally explored the direct effects that
personality traits exert on entrepreneurship (Robbins, 2005); however, whether internal
locus of control is a definitive influential factor affecting entrepreneurship remains
uncertain (Mitchell et al., 2002). The key mediators that influence the relationship between
personality traits and entrepreneurship have been rarely examined. Therefore, we build an
integrative model to examine the effects of internal locus of control on entrepreneurship
 The International Journal of Human Resource Management 3

by exploiting the mediating mechanisms of social capital and human capital. We make the
following contributions. First, we ascertained the influence of the personality trait of an
internal locus of control on entrepreneurship. Second, we incorporated the social exchange
theory and human capital theory into a research framework to determine the mediating
mechanisms that influence entrepreneurship, thereby advancing research in the field of
entrepreneurship.

Literature review and hypotheses

Literature review
Locus of control
Rotter (1954) explored personality traits by using the concept of locus of control, asserting
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that people with an internal locus of control believe that success and failure depend on the
amount of effort invested and that they can control their fate. By contrast, people with an
external locus of control believe that their fate is determined by chance or luck and not
within their control (Lii & Wong, 2008). Luthans et al. (2006) indicated that people with
an internal locus of control tend to positively face challenges and obstacles, resolving
problems by seeking constructive solutions. Compared with people with an external locus
of control, people with an internal locus of control exhibit higher achievement motivation;
consequently, they are more willing to learn and enhance their capabilities and knowledge
when encountering challenges (Johnson, 1980). Compared with other methods for
classifying personality traits, locus of control typically enables effectively distinguishing
between subjects; thus, people with an internal locus of control and people with an external
locus of control are commonly recruited as research subjects studies related to psychology
and applied psychology for analyzing various personality traits (Judge & Bono, 2001).
Similarly, in this study, we adopted the concept of locus of control for investigation.

Social capital
Coleman (1988) asserted that social resources can be converted into usable capital for
development, which is known as social capital. In social capital, an information channel
exists, providing a basis upon which two people can trust and influence each other.
Through resource conversion, information can be enhanced to enable an individual and a
group to achieve common goals (Liu, 2013). An enterprise is a community that comprises
a group of people; therefore, its internal and external networks and ties influence social
capital. Kostova and Roth (2003) indicated that through relationships and interpersonal
networks, social capital prompts people to create value. Subramaniam and Youndt (2005)
measured social capital according to the relationships that a person has with members
within and across organizations when engaging in problem solving and information
sharing. To investigate how entrepreneurs compensate for their shortcomings by using
their interpersonal relationships, we adopted the perspective of Subramaniam and Youndt
(2005) to determine the extent of relationships that exist within an interpersonal network
when a person uses such relationships solve problems by sharing information with
members within and across organizations.

Human capital
Becker, Bender and Kawabe (1980) proposed the human capital theory, which posits that
knowledge enhances individual cognitive ability and results in increased productivity and
 4 C. Hsiao et al.

efficiency of potential activity. Moreover, human capital can substantially increase a

persons cognitive ability and productivity. Hayton (2005) and Subramaniam and Youndt
(2005) maintained that human capital is associated with the knowledge, skills, abilities and
competencies a person possesses, and the supply and demand of human capital differs
among entrepreneurs (Hansen & Alewell, 2013). Enterprises with adequate human capital
can increase the potential productivity of their human resources and create inimitable
competencies, thereby establishing sustainable competitive advantages (Lado, Boyd, &
Wright, 1992). Furthermore, Subramaniam and Youndt (2005) asserted that entrepreneurs
should understand their competencies, abilities and technical skills to generate a unique
development advantage (Lado et al., 1992). Referring to the aforementioned perspective,
we investigated the professional skills and abilities that enable entrepreneurs to overcome
difficulties.
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Entrepreneurship
Entrepreneurship is defined as seeking innovation opportunities with an initiative attitude
(Lumpkin & Dess, 1996). Gupta, MacMillan, and Surie (2004) proposed that
entrepreneurship refers to those who actively seek such opportunities according to the
vision and strategies formulated to create values. Covin and Slevin (1989) defined
entrepreneurship as adopting innovative and creative approaches to gain profit, during
which entrepreneurs exhibit proactive attitudes to solve problems, assume risks and identify
opportunities. Krueger and Brazeal (1994) asserted that entrepreneurship emphasizes the
creation of value during innovative activities, rather than entrepreneurs personality traits.
Specifically, innovation is a crucial factor for entrepreneurship that reflects the process
through which entrepreneurs develop novel ideas and adopt proactive attitudes to solve
problems (Lumpkin & Dess, 2005). Innovation differs from entrepreneurial intentions,
which pertains to the cognitive attitudes toward entrepreneurial feasibility (Krueger, Reilly,
& Carsrud, 2000), whereas entrepreneurship emphasizes individual innovation, proactivity
and the degree of risk a person assumes (Covin & Slevin, 1989; Lumpkin & Dess, 2005).
In this study, we explored how people with an internal locus of control leverage social and
human capital to generate entrepreneurship. Thus, referencing the perspectives of Covin
and Slevin (1989) and Lumpkin and Dess (2005), we defined entrepreneurship as
proactively solving problems, assuming risks and adopting innovative processes to
facilitate developing novel ideas for creating business value.

Hypothesis development
Locus of control and entrepreneurship
Regarding the effects that locus of control exerts on entrepreneurship, Roberts (1991)
asserted that people with an internal locus of control are proactive and capable of rational
thinking and developing innovative and creative ideas to facilitate future development and
enhance entrepreneurship. Brandstatter (2011) claimed that locus of control is a key factor
influencing entrepreneurship, and that an internal locus of control influences the
development of entrepreneurship. Elfring and Hulsink (2003) asserted that people with an
internal locus of control can more effectively develop entrepreneurial processes because
they are extremely capable of recognizing, developing and assessing external
opportunities and are more emotionally stable and reliable compared with people with
an external locus of control. Tsai et al. (2008) asserted that people with an internal locus of
control typically believe that they can control their fate and that success depends on the
 The International Journal of Human Resource Management 5

amount of personal effort. Thus, people with an internal locus of control endeavor to
develop and improve their competences and actively solve problems, thereby exhibiting a
high level of entrepreneurship. According to the above assertions, we propose the
following hypothesis:
Hypothesis 1 (H1): Internal locus of control positively influences entrepreneurship.

Internal locus of control, social capital and entrepreneurship

Luthans et al. (2006) indicated that people with an internal locus of control tend to
positively face challenges and obstacles, resolving problems by seeking constructive
solutions. For example, people with an internal locus of control seek assistance from
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competent friends or experts to expand their social capital. Chen and Yen (2012) indicated
that people with an internal locus of control are relatively proactive; they seek assistance
from people in their social networks when faced with difficulties and challenges. During
business expansion processes, people with an internal locus of control use social capital to
compensate for their own inadequacies and to obtain additional information, which
facilitates the development of entrepreneurship (Obschonka, Silbereisen, & Schmitt-
Rodermund, 2012). Entrepreneurial opportunities can be recognized after utilizing
additional social capital and social network contacts, two factors that promote
entrepreneurship and enable people with an internal locus of control to achieve
entrepreneurial goals (Burt, 1992). Lumpkin and Dess (2001) suggested that enterprise
operations involve developing social capital and networks of contacts to enhance
entrepreneurial orientations. Consequently, an internal locus of control positively affects
social capital, through which internal locus of control positively influences entrepreneur-
ship (Chen & Yen, 2012). According to the aforementioned assertions, we maintain that
people with an internal locus of control are more likely to possess superior social capital
and proactively seek assistance from experts and contacts within their social networks.
By using their social capital, people with an internal locus of control can obtain different
types of information and support from numerous experts, thus compensating for their
weaknesses. Consequently, their entrepreneurial ability is enhanced, enabling them to
overcome the challenges and difficulties encountered during entrepreneurial ventures.
In summary, social capital is a key mediator in the relationship between internal locus of
control and entrepreneurship. Therefore, we propose the following hypothesis:
Hypothesis 2 (H2): Internal locus of control influences entrepreneurship through the
mediating effect of social capital.

Internal locus of control, human capital and entrepreneurship

Luthans and Youssef (2007) indicated that people with an internal locus of control often
uphold positive values and are dedicated to improving themselves. When encountering
challenges, people with an internal locus of control proactively solve problems by
improving their skills and acquiring additional knowledge. Seligman (1998) indicated that
people with an internal locus of control typically believe that effort results in success and
that the future can be controlled. Thus, people with an internal locus of control actively
cultivate skills and competencies to enrich their human capital. Because difficulties and
challenges are common during entrepreneurial processes, increasing human capital
can positively affect entrepreneurship (Stuetzer et al., 2013). Skilled and competent
 6 C. Hsiao et al.

entrepreneurs possess considerable resources that enhance their entrepreneurial

performance and competitive advantages (Bygrave & Zacharakis, 2009). Therefore,
according to these assertions, people with an internal locus of control exhibit higher
achievement motivation than do people with an external locus of control. When they
encounter an obstacle, people with an internal locus of control concentrate efforts to
learning; enhancing their existing abilities, knowledge and experiences; and enriching their
human capital. Thus, human capital (i.e. experience, knowledge and ability) is a key factor
that influences the promotion of entrepreneurship (Brandstatter, 2011).
In summary, people with an internal locus of control believe that they can control their
future, proactively improving professional techniques, knowledge and abilities. Using the
knowledge, abilities and experiences they have accumulated, people with an internal locus
of control can cultivate the necessary skills for implementing an entrepreneurial venture.
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In particular, when nascent entrepreneurs encounter unexpected difficulties and can only
depend on themselves, improving their existing skills enables them to proactively address
entrepreneurial challenges. Essentially, human capital mediates the relationship between
internal locus of control and entrepreneurship. Therefore, we propose the following
hypothesis:
Hypothesis 3 (H3): Internal locus of control influences entrepreneurship through the
mediating effect of human capital.

Methods
Population and sample
Currently, China is home to international factories and has exhibited tremendous industrial
growth. Furthermore, China is a crucial production base for technology manufacturing
industries (Yang & Hsia, 2005). For this study, we obtained approval from the senior
managers of 14 technology manufacturers in China. The management departments of
these companies distributed questionnaires to the managers.
The criteria adopted for selecting the 14 enterprises included the following: the
enterprises were large, as defined by the National Bureau of Statistics of China, which
states that an enterprise must possess more than 300 employees and an annual income that
exceeds 100 million (US$16 million). Of the 14 enterprises selected for this study, 11
employed more than 1000 employees, and three employed more than 300 employees.
Regarding annual income, eight of the 14 enterprises earned more than 300 million (US
$48 million), and six earned more than 100 million (US$16 million). Therefore, all 14
enterprises satisfied the criteria for a large enterprise. The included enterprises are highly
representative, demonstrate considerable scale and have established new entrepreneurial
businesses or project organizations.
The criteria adopted for the participating managers were as follows: the mangers must be
(a) capable of independently managing departmental operation planning, (b) accountable for
the success and failure of the departmental tasks and (c) likely to be transferred to other
departments or assigned to new business units, thereby exhibiting entrepreneurial potential.
The management departments assisted with questionnaire retrieval to ensure a satisfactory
recovery rate. A total of 1100 questionnaires were distributed, and 1002 valid questionnaires
were recovered, yielding a valid recovery rate of 91%.
The statistical population variables included in the questionnaire comprised sex, age,
years of work experience and job position. In this study, 56.6 and 43.3% of the participants
were men and women, respectively. Furthermore, 9.3% of the participants were younger
 The International Journal of Human Resource Management 7

than 20 years, 61.5% were aged 21 30 years, 26.6% were aged 31 40 years and 2.6%
were older than 41 years. Regarding work experience, 20.5% of the participants had
worked for 0 1 year, 35.5% had worked for 1 3 years, 17.3% had worked for 3 5 years,
10.1% had worked for 5 7 years and 16.6% had worked for more than 7 years. Finally,
72.1% of the participants served as low-level managers, and 27.9% served as mid- and
senior-level managers.
Chen and Lu (2013) indicated older workers have longer work experience and more
organizational commitment, because it is not easy to leave and change jobs. According a
survey that was conducted to investigate demographics and entrepreneurship in ethnically
Chinese communities, the peak age for entrepreneurship was younger than 25, and the
peak work experience for entrepreneurship was nearly 1 year (Chen & Yang, 2011; Lo
et al., 2007). This age range matched our samples, the majority of whom were aged 21 30
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years with a work experience of 0 3 years. For the sake of rigor, we divided the sample
according to the statistical empirical research framework into an overall sample, a mid-
and senior-level manager sample, and a low-level manager sample.

Measurement of variables
According to measurement variables used in related studies regarding personality traits,
social and human capital, and entrepreneurship, the questionnaires employed for this study
were designed and revised with the assistance of academic and industry experts. A five-
point Likert scale was adopted for this study (1 strongly disagree; 5 strongly agree).
In addition, we measured the internal and external loci of control by using the concept
developed by Rotter (1954) and a scale developed by Tsai et al. (2008). The scale comprised
the following three items: (a) I believe that effort can alter my life, (b) I believe that my
level of involvement determines the resulting outcome and (c) I typically apply a
proactive approach to my life (Tsai, Lu, Lin, & Ni, 2008). Respondents with scores
approaching 5 on the scale were more likely to have an internal locus of control, whereas
those with scores approaching 1 were more likely to have an external locus of control.
Regarding social capital, we adopted the scale proposed by Subramaniam and Youndt
(2005), which comprised the following three measurement items: (a) I can collaborate with
team members to identify and solve problems, (b) I share information with and learn from
others and (c) I can interact and exchange ideas with people who specialize in different
fields (Gupta & Govindarajan, 2000). The human capital scale was designed according to
the scale developed by Subramaniam and Youndt (2005) and comprised the following three
measurement items: (a) I possess excellent skills, (b) I am considered a skilled person in
this industry and (c) I am an expert in designated roles and functions (Snell & Dean,
1992). The scale for measuring entrepreneurship was developed by referring to the study by
Tsai et al. (2008) and comprised the following six items: (a) I tend to be creative, (b)
I resolve problems using innovative approaches, (c) I have innovative business
knowledge that can be applied to generate profit, (d) I understand that entrepreneurial
ventures involve risks, (e) I have decision-making autonomy in my job and (f) I can
handle various challenges independently (Chen & Yen, 2012; Lumpkin & Dess, 1996).

Results
Analysis of reliability, validity and common method variance
The variables examined in this study, namely internal locus of control, social and human
capital and entrepreneurship yielded Cronbachs a values that exceeded the accepted
 8 C. Hsiao et al.

standard of 0.5 recommended by Fornell and Larcker (1981). Furthermore, all composite
reliability values exceeded the standard of 0.6. These results indicate that the constructs
possessed satisfactory reliability (Bentler & Wu, 1993). Regarding validity, we examined
scales developed by relevant scholars, discussing the suitability of such scales with
relevant enterprise managers, and subsequently determined that the scales possessed
content validity. Confirmatory factor analysis (CFA) was performed to analyze the
construct validity of the scales. The results showed that the factor loadings for each scale
item exceeded the 0.5 standard recommended by Hair, Anderson, Tatham, and Black
(1992); thus, each scale demonstrated convergent validity. Furthermore, the square root of
the average variance extracted for each construct exceeded the correlation coefficients
between the other constructs. These results indicate that the scales used in this study
possess discriminant validity (Tables 1 and 2; Fornell & Larcker, 1981).
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Concerning the common method variance (CMV) test, following the recommendation
of Podsakoff and Organ (1986), we conducted a posttest by using Harmans single-factor
test to determine whether CMV existed in the questionnaire. After this method was
applied, 11 factors were identified in the scale; these factors yielded an explained variance
of 25.95, 8.96, 5.22, 4.59, 3.44, 3.05, 2.80, 2.67, 2.36, 2.24 and 2.19%. The first factor
possessed an explained variance of 25.95%, which did not exceed the total explained
variance of 50%; thus, CMV was not present in the research scales (Harris, Wheeler, &
Kacmar, 2009).

Model goodness-of-fit
This study assessed whether the entire model exhibited goodness-of-fit (GFI), and the
following results were obtained: (a) regarding the absolute fit measures, the GFI was
0.915, which exceeded the standard value of 0.8. The root mean square residual and the
root mean square error of approximation were 0.041 and 0.077 lower, respectively, than
the standard value of 0.08 (McDonald & Ho, 2002). (b) For the incremental fit measures,

Table 1. Reliability and validity analysis.

Factor Square root

Construct Item loading Cronbachs a CR of AVE
Internal locus of Internal locus of 0.656 0.668 0.686 0.652
control control 1
Internal locus of 0.538
control 2
Internal locus of 0.746
control 3
Social capital Social capital 1 0.724 0.746 0.765 0.722
Social capital 2 0.746
Social capital 3 0.695
Human capital Human capital 1 0.748 0.819 0.810 0.766
Human capital 2 0.781
Human capital 3 0.770
Entrepreneurship Entrepreneurship 1 0.657 0.741 0.749 0.578
Entrepreneurship 2 0.653
Entrepreneurship 3 0.597
Entrepreneurship 4 0.501
Entrepreneurship 5 0.511
Entrepreneurship 6 0.529
 The International Journal of Human Resource Management 9

Table 2. Discriminant validity and correlation analysis.

Internal locus Social Human

of control capital capital Entrepreneurship
Internal locus of 0.652
control
Social capital 0.455*** 0.722
Human capital 0.274*** 0.315*** 0.766
Entrepreneurship 0.350*** 0.434*** 0.501*** 0.578
Note: The values presented on the diagonal line represent the square root of AVE for each construct. *p , 0.05;
**p , 0.01; ***p , 0.001.

the adjusted GFI, normed fit index (NFI) and comparative fit index were 0.879, 0.878 and
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0.893, respectively, all of which exceeded the standard value of 0.8 (Gefen, Straub, &
Boudreau, 2000). (c) Regarding parsimonious fit measures, the parsimony NFI and
parsimony GFI were 0.702 and 0.641, respectively, both of which exceeded the standard
value of 0.5. These results show that a satisfactory model fit was achieved.

SEM analysis
SEM analysis was conducted to examine the causal relationships among variables and
verify the hypotheses proposed in this study. Internal locus of control (influence coefficient
of 0.204) had a positive, significant influence on entrepreneurship. Thus, Hypothesis 1 was
supported. Internal locus of control (influence coefficient of 0.670) had a positive,
significant influence on social capital, and social capital (influence coefficient of 0.178) had
a positive, significant influence on entrepreneurship. According to the Sobel test for
examining mediating effects (Sobel, 1982), this study verified the mediating effect that
social capital has on the relationship between internal locus of control and entrepreneurship
(Sobel test: 3.866, p , 0.000). The results revealed that internal locus of control influences
entrepreneurship through the mediating effect of social capital. Thus, Hypothesis 2 was
supported. Internal locus of control (influence coefficient of 0.413) exerted a positive,
significant influence on human capital, and human capital (influence coefficient of 0.421)
produced a positive, significant influence on entrepreneurship. Again, according to the
Sobel test, this study verified the mediating effect that human capital exerts on the
relationship between internal locus of control and entrepreneurship. The results showed that
human capital mediates the effects that internal locus of control has on entrepreneurship
(Sobel test: 7.354, p , 0.000). Thus, Hypothesis 3 was supported (Figure 1 and Table 3).
SEM was employed to further analyze 723 additional questionnaires completed by the
low-level managers and 279 additional questionnaires completed by the mid- and senior-
level managers at the sampled companies. The internal locus of control of the low-level
managers (influence coefficient of 0.203) and the mid- and senior-level managers
(influence coefficient of 0.228) had a positive, significant influence on
entrepreneurship. The internal locus of control of the low-level managers (influence
coefficient of 0.669) and the mid- and senior-level managers (influence coefficient of
0.674) had a positive, significant influence on social capital, and the social capital of the
low-level managers (influence coefficient of 0.144) and the mid- and senior-level
managers (influence coefficient of 0.257) had a positive, significant influence on
entrepreneurship. According to the Sobel test, this study verified the mediating effect that
social capital has on the relationship between internal locus of control and entrepreneur-
ship in low-level managers (Sobel test: 2.549, p , 0.01) and mid- and senior-level
 10 C. Hsiao et al.

Social Social Social

capital 1 capital 2 capital 3 Entrepreneurship 1
0.746 0.657
0.724 0.695
Internal locus Entrepreneurship 2
of control 1 0.656 Social
0.653
capital
0.670 R2=0.434 0.178 Entrepreneurship 3
Internal locus 0.538 Internal Entrepren 0.597
of control 2 locus of eurship
0.204 0.501
control R2=0.573 Entrepreneurship 4
Internal locus 0.746 0.413
0.421 0.511
of control 3 Human
capital Entrepreneurship 5
R2=0.183 0.529
0.748 0.770
0.781 Entrepreneurship 6
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Human Human Human

capital 1 capital 2 capital 3

Figure 1. SEM analysis results.

Table 3. SEM analysis results.

Influence relationships Influence coefficient CR value Significance
Internal locus of control Entrepreneurship 0.204 3.977 0.000***
Internal locus of control Social capital 0.670 13.153 0.000***
Internal locus of control Human capital 0.413 9.791 0.000***
Social capital Entrepreneurship 0.178 4.005 0.000***
Human capital Entrepreneurship 0.421 10.940 0.000***
Note: *p , 0.05; **p , 0.01; ***p , 0.001.

managers (Sobel test: 2.949, p , 0.01). The results for managers of all levels showed that
internal locus of control influences entrepreneurship through the mediating effect of social
capital. The internal locus of control of the low-level managers (influence coefficient of
0.356) and the mid- and senior-level managers (influence coefficient of 0.457) exerts a
positive, significant influence on human capital, and the human capital of the low-level
managers (influence coefficient of 0.401) and the mid- and senior-level managers
(influence coefficient of 0.469) exhibits a positive, significant influence on
entrepreneurship. According to the Sobel test, this study verified the mediating effect
that human capital exerts on the relationship between internal locus of control and
entrepreneurship. The results revealed that human capital mediates the effects that internal
locus of control has on entrepreneurship in the low-level managers (Sobel test: 5.597, p ,
0.000) and the mid- and senior-level managers (Sobel test: 4.108, p , 0.000). The results

Table 4. SEM analysis results low-level managers.

Influence relationships Influence coefficient CR value Significance
Internal locus of control Entrepreneurship 0.203 3.306 0.000***
Internal locus of control Social capital 0.669 11.126 0.000***
Internal locus of control Human capital 0.356 7.370 0.000***
Social capital Entrepreneurship 0.144 2.621 0.009**
Human capital Entrepreneurship 0.401 8.550 0.000***
Note: *p , 0.05; **p , 0.01; ***p , 0.001.
 The International Journal of Human Resource Management 11

Table 5. SEM analysis results regarding the mid- and senior-level managers.

Influence relationships Influence coefficient CR value Significance

Internal locus of control Entrepreneurship 0.228 2.317 0.020*
Internal locus of control Social capital 0.674 6.608 0.000***
Internal locus of control Human capital 0.457 5.503 0.000***
Social capital Entrepreneurship 0.257 3.287 0.001**
Human capital Entrepreneurship 0.469 6.216 0.000***
Note: *p , 0.05; **p , 0.01; ***p , 0.001.

for managers of all levels showed that internal locus of control influences entrepreneurship
through the mediating effect of human capital (Tables 4 and 5).
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Discussion and conclusion

Discussion
We explored how locus of control influences entrepreneurship through various key
mediators because previous research indicated that entrepreneurs engaging in
entrepreneurial ventures in Chinese society not only require networks of contacts (Bian
& Ang, 1997), but also develop diverse skills to solve unexpected problems, and are
thus crucial references for professional development (Bian & Ang, 1997; Lu, 2006).
We combined the social exchange theory proposed by Blau (1964), who postulated that
fostering social interpersonal relationships can facilitate career development, with Schultz
(1961) human capital theory, which focuses on developing skills and acquiring knowledge
to enhance professional competitiveness. We examined the effects that the internal locus of
control has on entrepreneurship, using social and human capital as the key-mediating
mechanisms. Overall, the following result was obtained: internal locus of control influences
entrepreneurship through the mediating effect of social capital and human capital.
First, this study verified that internal locus of control influences entrepreneurship.
According to the empirical results, internal locus of control has a positive, significant influence
on entrepreneurship among managers of all levels. This finding is consistent with that of Tsai
et al. (2008), who indicated that people with an internal locus of control typically believe they
can control their own fate and that success and failure depend on the amount of effort invested.
In addition, entrepreneurs proactively develop and improve their capabilities to face and solve
problems. Therefore, people with an internal locus of control exhibit a relatively high level of
entrepreneurship (Brandstatter, 2011; Elfring and Hulsink, 2003; Tsai et al., 2008).
Furthermore, people with an internal locus of control are proactive and capable of rational
thinking, providing innovative and creative ideas to promote entrepreneurship (Roberts, 1991).
Second, regarding the overall research framework, in the mediating mechanism of
social capital section, we found that social capital fully mediates the relationship between
internal locus of control and entrepreneurship for managers of all levels. This finding
correspondents the research by Luthans et al. (2006), who asserted that people with an
internal locus of control tend to positively accept challenges and face obstacles by seeking
assistance from friends or experts to obtain additional social capital. After utilizing their
social capital and social network contacts, they can recognize entrepreneurial opportunities,
which promote entrepreneurship and achieving entrepreneurial goals (Burt, 1992).
Therefore, this study verified the importance of using social capital to overcome difficulties
during entrepreneurial ventures. This finding is consistent with that of Bian and Ang (1997),
who asserted that establishing relationships and networks is vital for entrepreneurial
 12 C. Hsiao et al.

ventures in Chinese society, because such networks facilitate the development of amicable
relationships and compensate for personal weaknesses. Hence, social capital is a crucial
factor directly affecting professional development in Chinese society.
Third, according to the empirical results, human capital fully mediates the relationship
between internal locus of control and entrepreneurship for managers of all levels. This finding
suggests that although nascent entrepreneurs can mitigate their weaknesses by employing
social capital, when an urgent matter arises and the entrepreneur cannot resolve the problem
using immediately accessible resources and assistance from others, they must expand their
human capital to overcome unexpected complications. This finding is consistent with that of
Lu (2006), who asserted that people in the Chinese society emphasize the cultivation of skills.
In addition, the accumulation of human capital is deemed a vital component of personal skills
and the ability to earn a living. The results of this study also reflect the assertion by Luthans and
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Youssef (2007), who observed that people with an internal locus of control uphold positive
values and are dedicated to improving themselves. When encountering challenges, such
people proactively solve problems by enhancing their skills and acquiring additional
knowledge. Because difficulties and frustrations are commonly encountered during
entrepreneurial processes, increasing human capital can positively influence entrepreneurship
(Stuetzer et al., 2013). Specifically, the experiences, knowledge and abilities obtained through
human capital are crucial factors that influence entrepreneurship (Brandstatter, 2011).

Management implications
This study verified that social and human capital mediate the relationship between internal
locus of control and entrepreneurship, indicating that social and human capital are crucial
factors promoting the development of entrepreneurship (Bygrave & Zacharakis, 2009; Evans,
Puick, & Barsous, 2001). Particularly in the context of Chinese society, establishing
relationships and networks is vital because they enable the development of positive
relationships and enhance personal weaknesses. Therefore, before commencing entrepre-
neurial ventures, entrepreneurs should determine whether their relatives and friends have
entrepreneurial experiences and are willing to provide resources and assistance. Alternatively,
aspiring entrepreneurs can expand their social networks and understand and address their
weaknesses by joining organizations related to entrepreneurial coaching and participate in
focus group discussions, seminars and networking mixers for entrepreneurs in which
information sharing is encouraged (Colvin, Cullen, & Ven, 2002; Hoang & Huang, 2008).
Concerning human capital, we conclude from this study that people in Chinese society
emphasize the cultivation of skills through education, training and experience transmission;
they also consider human capital to be a vital component for fostering personal skills,
improving the ability to earn a living and developing entrepreneurship. We thus recommend
that public sector organizations providing relevant entrepreneurial coaching and private
venture capital firms should focus on enhancing entrepreneurs human capital. Such
organizations can offer various entrepreneurial resources and support, such as educational
training, case analyses regarding the success or failure of entrepreneurs, and practical
training for microentrepreneurs, to rapidly increase entrepreneur skills, knowledge and
experiences, thereby ultimately enhancing the ability of entrepreneurs to adapt to
continuous changes in an entrepreneurial environment (Brandstatter, 2011).

Study limitations and recommendations for future research

First, regarding the research sample, the study included 14 enterprises in the Peoples
Republic of China. Therefore, the respondents might have been affected by local cultures,
 The International Journal of Human Resource Management 13

customs and habits. Nevertheless, we endeavored to avoid sample biases that could
result from a small sample size or case surveys, which are typically influenced by the
organizational cultures or individual corporate systems. Consequently, we aimed to
achieve sample diversity by collecting 1002 samples from 14 enterprises with the
assistance of numerous senior managers. Furthermore, we surveyed potential entrepreneurs
(who had not yet initiated an entrepreneurial venture); therefore, all the status regarding
the entrepreneurship of the participants was examined. To achieve sample diversity,
subsequent studies are recommended to investigate potential entrepreneurs of small to
medium enterprises in addition to entrepreneurs of large corporations.
Nonetheless, we recommends that future studies aiming to understand the temporal
changes in a causal relationship conduct in-depth investigations by using a longitudinal
approach to examine entrepreneurs throughout the transition from potential to successful
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entrepreneurs. Thus, data of variables relevant to participants at differing time points can
be obtained by, for example, conducting three-stage verification (i.e. ex- ante-,
intermediate and ex post verification).
Finally, human resource studies typically focus on people; therefore, the methods used
to understand human behavior and psychological states should be flexible and diverse.
This study adopted a quantitative scientific approach; however, using a qualitative
approach to perform a priori investigation of the research questions proposed in this study
can contribute to the quality of the research and enhance the connection between theory
and practice.

Disclosure statement
No potential conflict of interest was reported by the authors.

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