Institutional distance, geographic distance, and Chinese venture capital investment: do networks and trust matter?

Ying Sophie Huang (), Buhui Qiu (), Jiajia Wu () and Juan Yao ()
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Ying Sophie Huang: Zhejiang University
Buhui Qiu: The University of Sydney Business School
Jiajia Wu: Zhejiang University
Juan Yao: The University of Sydney Business School

Small Business Economics, 2023, vol. 61, issue 4, No 17, 1795-1844

Abstract: Abstract This paper studies the effects of institutional distance and geographic distance on Chinese venture capital (VC) investment and subsequent exit and further investigates how social capital, that is, networks and trust, moderates such effects. We document significant dampening effects of both institutional and geographic distances on the likelihood of VC investment, while such effects are mitigated by the level of trust. The dampening effect of institutional distance (geographic distance) on VC investment is enhanced (weakened) by VC firms’ network strength. These findings suggest that networks and trust play different roles in moderating the effects of institutional and geographic distances on VC investment in China, which has a unique institutional environment and flourishing VC industry. Further analysis on exit outcomes shows that institutional distance leads to lower likelihood of successful exits, and the dampening effect of institutional distance on the likelihood of successful exits cannot be mitigated by networks or trust.

Keywords: Chinese VC investment; Institutional distance; Geographic distance; Networks; Trust (search for similar items in EconPapers)
JEL-codes: G11 G24 M13 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11187-023-00751-9

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