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Social Capital and Cross-Border Venture Capital Investments in China

Author

Listed:
  • Yi Tan

    (Antai College of Economics & Management, Shanghai Jiao Tong University, NO. 1954 Huashan Road, Shanghai 200030, China)

  • Xiaoli Wang

    (School of Management, Marist College, Poughkeepsie, NY 12601, USA)

  • Jason Z. -H. Lee

    (School of Management, Marist College, Poughkeepsie, NY 12601, USA)

  • Kun Shi

    (Antai College of Economics & Management, Shanghai Jiao Tong University, NO. 1954 Huashan Road, Shanghai 200030, China)

Abstract

In the context of the Chinese market, foreign cross-border venture capitalists have devised specific strategies to mitigate the challenges associated with the liabilities of foreignness, such as risks and information asymmetry. They have strategically leveraged social capital to not only decrease investment risk but also to influence their investment preferences and behaviors. To investigate the influence of different types of social capital on the investment decisions of cross-border venture capitalists, hypotheses are proposed and tested using regression analysis. Our research reveals several key findings in this regard. Firstly, cross-border venture capitalists with a robust structural social capital network exhibit a greater propensity to invest in early-stage companies. This suggests that well-established connections and partnerships within the Chinese entrepreneurial ecosystem provide a level of comfort and confidence when investing in ventures at their infancy. Interestingly, relational and cognitive social capital, though undoubtedly valuable, do not significantly impact the decision to make early-stage investments. Furthermore, we have observed that venture capitalists with higher levels of structural and cognitive social capital are more inclined to form syndications. Collaborative partnerships and shared knowledge networks seem to be crucial factors that drive syndication decisions. Lastly, venture capitalists endowed with substantial structural and relational social capital tend to allocate larger investment amounts, signifying the influence of business or personal relationships and network connections on the scale of their investments.

Suggested Citation

  • Yi Tan & Xiaoli Wang & Jason Z. -H. Lee & Kun Shi, 2024. "Social Capital and Cross-Border Venture Capital Investments in China," IJFS, MDPI, vol. 12(2), pages 1-14, April.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:2:p:41-:d:1385985
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    References listed on IDEAS

    as
    1. Oliver Alexy & Joern Block & Philipp Sandner & Anne Ter Wal, 2012. "Social capital of venture capitalists and start-up funding," Small Business Economics, Springer, vol. 39(4), pages 835-851, November.
    2. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, June.
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