Numerous studies have examined the positive effects of social capital in organizations, whereas the possible negative effects have attracted considerably less scholarly attention. To rectify this imbalance, this paper first undertakes a rigorous review of the published scholarly empirical evidence pertaining to the negative effects of social capital in organizations through a search of Web of Knowledge and Scopus, and then enumerates six potentially negative effects arising from increased levels of social capital. The review focuses on negative effects arising from bonding social capital and those arising from dense networks and closure, advancing new theory to elucidate the generative mechanisms that give rise to the proposed negative effects. Finally, the authors identify potential moderators of the negative effects thus theorized. Using the lens of social identification theory, the authors argue that dysfunctional identification processes restrict the processing of information and stimulate over‐commitment to established relationships, diluting in turn the dialectical process, and inhibiting individual learning within organizations, culminating in groupthink, the postponement of structural adjustments, the non‐rational escalation of commitment, and the blurring of firms’ boundaries. This review thus furthers the agenda of a more balanced inquiry into the effects of social capital in organizations.