An Original Investigation of Power, Trust, and Governance in Nigerian Business Networks: A Social Capital Theory Approach

Business networks in Nigeria operate through complex webs of power, trust, and informal governance that formal contract law and conventional transaction cost frameworks inadequately explain, and an original social capital theory-based investigation provides richer theoretical and practical insights. This study investigates the power dynamics, trust mechanisms, and informal governance structures in Nigerian business networks across three sectors (Alaba electronics trading network in Lagos, Kano dry goods wholesale network, and Aba manufactured goods distribution network), developing an original Power-Trust-Governance Framework for Nigerian Business Networks (PTGFNBN). The framework integrates social capital theory, institutional theory, and power-dependence theory to explain how informal authority structures, ethnic-based trust networks, and hybrid formal-informal governance arrangements sustain high-volume commercial exchange in the absence of strong formal legal enforcement. A multi-site ethnographic research design was employed, with 24 months of fieldwork across the three network sites, including participant observation (400 observation hours), 120 in-depth interviews with network members at varying power positions, transactional data collection from 180 network firms, and social network analysis mapping 650 network relationships. Social network analysis reveals high clustering within ethnic sub-groups and bridging connections between groups concentrated in a small number of high-trust network brokers. The PTGFNBN identifies original mechanisms including Ethnic Collateral (the use of ethnic identity and community reputational risk as an informal contract enforcement mechanism) and Power-Trust Conversion (the process through which market power asymmetry is converted to earned relational trust over time). The study constitutes an original contribution to business network theory and informal governance literature for West African commercial contexts.

Keywords: business networks, social capital, trust, informal governance, Nigeria