Navigating investment decisions with social connectedness: Implications for venture capital

Giang Nguyen; My  Nguyen; Viet Anh Pham; Man Duy (Marty) Pham

doi:10.1016/j.jbankfin.2023.106979

Navigating investment decisions with social connectedness: Implications for venture capital

Giang Nguyen, My Nguyen^*, Viet Anh Pham, Man Duy (Marty) Pham

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

3 Citations (Scopus)

11 Downloads (Pure)

Abstract

This study examines how the geographical structure of social networks shapes venture capital (VC) investment decisions. We find that VC firms invest more in portfolio companies in socially connected regions. The effect is more pronounced among independent, smaller, less reputable, early–stage–focused VC firms and those not from a VC hub. We further document that social connectedness lowers the likelihood of a successful exit since it induces VC firms to undertake suboptimal investment decisions. Overall, our findings highlight the role of social connectedness in constituting the geographical differences in VC firms’ capital allocation and investment outcomes.

Original language	English
Article number	106979
Pages (from-to)	1-18
Number of pages	18
Journal	Journal of Banking and Finance
Volume	155
DOIs	https://doi.org/10.1016/j.jbankfin.2023.106979
Publication status	Published - Oct 2023
Externally published	Yes

Bibliographical note

© 2023 The Authors. Published by Elsevier B.V. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

Social connectedness
Venture capital
Capital allocation
Investment performance

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10.1016/j.jbankfin.2023.106979Licence: CC BY-NC

Publisher version (open access)Final published version, 4.59 MBLicence: CC BY-NC

Cite this

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title = "Navigating investment decisions with social connectedness: Implications for venture capital",

abstract = "This study examines how the geographical structure of social networks shapes venture capital (VC) investment decisions. We find that VC firms invest more in portfolio companies in socially connected regions. The effect is more pronounced among independent, smaller, less reputable, early–stage–focused VC firms and those not from a VC hub. We further document that social connectedness lowers the likelihood of a successful exit since it induces VC firms to undertake suboptimal investment decisions. Overall, our findings highlight the role of social connectedness in constituting the geographical differences in VC firms{\textquoteright} capital allocation and investment outcomes.",

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T2 - Implications for venture capital

AU - Nguyen, Giang

AU - Nguyen, My

AU - Pham, Viet Anh

AU - Pham, Man Duy (Marty)

N1 - © 2023 The Authors. Published by Elsevier B.V. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

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N2 - This study examines how the geographical structure of social networks shapes venture capital (VC) investment decisions. We find that VC firms invest more in portfolio companies in socially connected regions. The effect is more pronounced among independent, smaller, less reputable, early–stage–focused VC firms and those not from a VC hub. We further document that social connectedness lowers the likelihood of a successful exit since it induces VC firms to undertake suboptimal investment decisions. Overall, our findings highlight the role of social connectedness in constituting the geographical differences in VC firms’ capital allocation and investment outcomes.

AB - This study examines how the geographical structure of social networks shapes venture capital (VC) investment decisions. We find that VC firms invest more in portfolio companies in socially connected regions. The effect is more pronounced among independent, smaller, less reputable, early–stage–focused VC firms and those not from a VC hub. We further document that social connectedness lowers the likelihood of a successful exit since it induces VC firms to undertake suboptimal investment decisions. Overall, our findings highlight the role of social connectedness in constituting the geographical differences in VC firms’ capital allocation and investment outcomes.

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KW - Capital allocation

KW - Investment performance

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Navigating investment decisions with social connectedness: Implications for venture capital

Abstract

Bibliographical note

Keywords

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