We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Institutional distance, geographic distance, and Chinese venture capital investment: do networks and trust matter?
- Authors
Huang, Ying Sophie; Qiu, Buhui; Wu, Jiajia; Yao, Juan
- 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. Plain English Summary: Chinese VC firms are less likely to invest in institutionally and/or geographically distant provinces. Types of social capital, such as networks and trust, play different roles in moderating the distance effects. VC firms' network strength aggravates the negative effect of institutional distance but mitigates the negative effect of geographic distance on VC investments. In contrast, trust can help overcome investment obstacles due to institutional and geographic distances. Regarding exits from portfolio companies, VC investments in institutionally distant provinces have lower likelihood of successful exits, which cannot be mitigated by greater VC network strength. The findings suggest that to attract VC investment, local governments should foster market-friendly institutions, regulations, and policies. For institutionally and/or geographically distant provinces, enhancing social trust can help overcome the distance effects.
- Subjects
CHINA; TRUST; VENTURE capital; INSTITUTIONAL environment; SOCIAL capital; LOCAL government
- Publication
Small Business Economics, 2023, Vol 61, Issue 4, p1795
- ISSN
0921-898X
- Publication type
Article
- DOI
10.1007/s11187-023-00751-9