Social Capital and Cross-Border Venture Capital Investments in China

Yi Tan, Xiaoli Wang, Jason Z. -H. Lee () and Kun Shi
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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

IJFS, 2024, vol. 12, issue 2, 1-14

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.

Keywords: cross-border venture capital; social capital; investment behavior; cross-cultural investment (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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