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Venture Capital Networks and Investment Performance in China



We investigate the relationship between venture capital (VC) networks and investment performance in China. Distinct features of China’s VC networks are captured in our econometric model through the inclusion of an index of network stability and a dummy variable that indicates a VC firm’s connections with the Chinese state. Our econometric analysis shows that a VC firm’s position in its network, its network stability and close connections with the state all contribute to its investment performance. Comparison with the findings in Hochberg et al. (2007) indicates that networks are more important for investment performance in China than in the US. Moreover, our analysis suggests that familiarity with local culture and customs and understanding of the idiosyncrasies of China’s markets and institutions are important for the success of a VC firm in China.

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  • Zhiyang Liu & Zhiqi Chen, 2014. "Venture Capital Networks and Investment Performance in China," Carleton Economic Papers 14-12, Carleton University, Department of Economics.
  • Handle: RePEc:car:carecp:14-12

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    References listed on IDEAS

    1. Steven N. Kaplan & Per Strömberg, 2004. "Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses," Journal of Finance, American Finance Association, vol. 59(5), pages 2177-2210, October.
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    6. Gompers, Paul & Lerner, Josh, 1999. "An analysis of compensation in the U.S. venture capital partnership," Journal of Financial Economics, Elsevier, vol. 51(1), pages 3-44, January.
    7. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, vol. 62(1), pages 251-301, February.
    8. Lockett, Andy & Wright, Mike, 2001. "The syndication of venture capital investments," Omega, Elsevier, vol. 29(5), pages 375-390, October.
    9. McNally Christopher A, 2011. "China's Changing Guanxi Capitalism: Private Entrepreneurs between Leninist Control and Relentless Accumulation," Business and Politics, De Gruyter, vol. 13(2), pages 1-31, August.
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    11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    12. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
    13. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2010. "Networking as a Barrier to Entry and the Competitive Supply of Venture Capital," Journal of Finance, American Finance Association, vol. 65(3), pages 829-859, June.
    14. Dimov, Dimo & Milanov, Hana, 2010. "The interplay of need and opportunity in venture capital investment syndication," Journal of Business Venturing, Elsevier, vol. 25(4), pages 331-348, July.
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    17. Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
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    Cited by:

    1. Jin, Yonghong & Zhang, Qi & Li, Sai-Ping, 2016. "Topological properties and community detection of venture capital network: Evidence from China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 442(C), pages 300-311.

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    Venture capital; Networks; Investment performance; China;

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