Navigating investment decisions with social connectedness: Implications for venture capital

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

Journal of Banking & Finance, 2023, vol. 155, issue C

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.

Keywords: Social connectedness; Venture capital; Capital allocation; Investment performance (search for similar items in EconPapers)
JEL-codes: D82 D83 G20 G24 L14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:155:y:2023:i:c:s0378426623001772

DOI: 10.1016/j.jbankfin.2023.106979

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