Special Issue on Corporate Transformation in the People's Republic of China: Entrepreneurs' Access to Private Equity in China: The Role of Social Capital

This article examines the effect of entrepreneurs' social capital on investment decisions of venture capitalists. The empirical data is composed of 158 venture capital decisions in the People's Republic of China. We found that entrepreneurs' social capital has significant effects on investment selection decisions of venture capitalists in interaction with growth potential and technology/products of the venture. We also found that strong ties between entrepreneurs and venture capitalists have significant direct effects on investment process decisions such as contractual covenants, investment delivery, and venture valuation.

[1]  D. Krackhardt.  Simmelian Ties: Super Strong and Sticky , 1998 .

[2]  Roberto M. Fernandez,et al.  Social Capital at Work: Networks and Employment at a Phone Center , 2000, American Journal of Sociology.

[3]  Per Strömberg,et al.  Venture Capitalists as Principals: Contracting, Screening, and Monitoring , 2001 .

[4]  S. Shane,et al.  A PRISONER'S DILEMMA APPROACH TO ENTREPRENEUR-VENTURE CAPITALIST RELATIONSHIPS , 1997 .

[5]  Mike W. Peng.  How entrepreneurs create wealth in transition economies , 2001 .

[6]  Josh Lerner,et al.  Venture Capitalists and the Oversight of Private Firms , 1995 .

[7]  S. Ghoshal,et al.  Social Capital and Value Creation: The Role of Intrafirm Networks , 1998 .

[8]  Thomas F. Hellmann,et al.  The Allocation of Control Rights in Venture Capital Contracts , 1998 .

[9]  N. Lin.  Social Capital: Frontmatter , 2001 .

[10]  P. Bourdieu.  Forms of Capital , 2002 .

[11]  Anne S. Tsui,et al.  Where Guanxi Matters , 1997 .

[12]  D. Krackhardt.  Assessing the political landscape: Structure, cognition, and power in organizations. , 1990 .

[13]  N. Lin.  Social Capital: A Theory of Social Structure and Action , 2001 .

[14]  N. Lin,et al.  Social Resources and Occupational Status Attainment , 1981 .

[15]  Mark S. Granovetter.  The Strength of Weak Ties , 1973, American Journal of Sociology.

[16]  Toby E. Stuart,et al.  Syndication Networks and the Spatial Distribution of Venture Capital Investments1 , 1999, American Journal of Sociology.

[17]  Garry D. Bruton,et al.  An institutional view of China's venture capital industry Explaining the differences between China and the West , 2003 .

[18]  Anne S. Tsui,et al.  Guanxi in the Chinese Context , 2000 .

[19]  J. Jaccard.  Interaction effects in logistic regression , 2001 .

[20]  J. Coleman,et al.  Social Capital in the Creation of Human Capital , 1988, American Journal of Sociology.

[21]  Bat Batjargal,et al.  Social Capital and Entrepreneurial Performance in Russia: A Longitudinal Study , 2003 .

[22]  Nancy M. Carter,et al.  Women and Equity Capital: An Exploration of Factors Affecting Capital Access , 2000 .

[23]  Bat Batjargal,et al.  The Dynamics of Entrepreneurial Networks in a Transitional Economy: The Case of Russia , 2000 .

[24]  K. Eisenhardt,et al.  Accelerating Adaptive Processes: Product Innovation in the Global Computer Industry , 1995 .

[25]  Joel M. Podolny,et al.  Choosing Ties from the Inside of a Prism: Egocentric Uncertainty and Status in Venture Capital Markets , 1999 .

[26]  Charles A. O'Reilly,et al.  Being different: Relational demography and organizational attachment. , 1991 .

[27]  Y. Bian.  Bringing strong ties back in: Indirect ties, network bridges, and job searches in China , 1997 .

[28]  Manju Puri,et al.  The Interaction between Product Market and Financing Strategy: The Role of Venture Capital , 1999 .

[29]  Harry J. Sapienza,et al.  When do venture capitalists add value , 1992 .

[30]  Andrew B. Kipnis.  Producing Guanxi: Sentiment, Self, and Subculture in a North China Village , 1997 .

[31]  P. Adler,et al.  Social Capital: Prospects for a New Concept , 2002 .

[32]  Steven B. Andrews,et al.  Structural Holes: The Social Structure of Competition , 1995, The SAGE Encyclopedia of Research Design.

[33]  Hans Landström,et al.  Contracts between entrepreneurs and investors: Terms and negotiation processes , 1998 .

[34]  John A. Nelder,et al.  Generalized linear models. 2nd ed. , 1993 .

[35]  A. Stinchcombe.  Social Structure and Organizations , 2000, Political Organizations.

[36]  Mark S. Granovetter.  Economic Action and Social Structure: The Problem of Embeddedness , 1985, American Journal of Sociology.

[37]  John Freeman,et al.  Venture Capital as an Economy of Time , 1999 .

[38]  M. Boisot,et al.  From Fiefs to Clans and Network Capitalism: Explaining China's Emerging Economic Order , 1996 .

[39]  S. Spinelli,et al.  New Venture Creation: Entrepreneurship for the 21st Century , 1999 .

[40]  Paul A. Gompers,et al.  The venture capital cycle , 1999 .

[41]  Howard E. Aldrich,et al.  Entrepreneurship Through Social Networks , 1986 .

[42]  Rosalie L. Tung,et al.  Achieving business success in Confucian societies: The importance of guanxi (connections) , 1996 .

[43]  V. Nee.  Organizational Dynamics of Market Transition: Hybrid Forms, Property Rights, and Mixed Economy in China , 1992 .

[44]  Soon Ang,et al.  Guanxi Networks and Job Mobility in China and Singapore , 1997 .

[45]  Charles W. Hofer,et al.  Venture capitalists' decision criteria in new venture evaluation , 1993 .

[46]  Joel Podolny.  Market Uncertainty and the Social Character of Economic Exchange , 1994 .

[47]  Andrew G. Walder,et al.  Communist Neo-Traditionalism: Work and Authority in Chinese Industry , 1988 .

[48]  Scott Shane,et al.  Network Ties, Reputation, and the Financing of New Ventures , 2002, Manag. Sci..

[49]  Mark E. Schaffer,et al.  The Determinants of Privatized Enterprise Performance in Russia , 2002 .

[50]  Nan Lin,et al.  Access to occupations through social ties , 1986 .

[51]  Ian C. MacMillan,et al.  Criteria distinguishing successful from unsuccessful ventures in the venture screening process , 1987 .

[52]  Gary King,et al.  Logistic Regression in Rare Events Data , 2001, Political Analysis.

[53]  Andrea L. Larson.  Network Dyads in Entrepreneurial Settings: A Study of the Governance of Exchange Relationships , 1992 .

[54]  Jeffrey Pfeffer,et al.  The Effect of Uncertainty on the Use of Social Influence in Organizational Decision Making. , 1976 .

[55]  P. Jones,et al.  Social structure and organisation , 1985 .

[56]  C. O'Reilly,et al.  Social Capital at the Top: Effects of Social Similarity and Status on CEO Compensation , 1996 .

[57]  Chen Tong,et al.  Business decision making in China , 1997 .

[58]  S. Birley.  The Role of Networks in the Entrepreneurial Process , 1985 .

[59]  W. A. Sahlman,et al.  The structure and governance of venture-capital organizations , 1990 .

[60]  Rashid Malik.  Chinese entrepreneurs in the economic development of China , 1997 .

[61]  W. Baker.  Market Networks and Corporate Behavior , 1990, American Journal of Sociology.

[62]  Jean C. Oi.  Fiscal Reform and the Economic Foundations of Local State Corporatism in China , 1992, World Politics.

[63]  Paul A. Gompers.  Optimal Investment, Monitoring, and the Staging of Venture Capital , 1995 .

[64]  Mayfair M Yang.  Gifts, Favors, and Banquets: The Art of Social Relationships in China , 1996, Journal of Asian Studies.

[65]  J. Pearce,et al.  Guanxi: Connections As Substitutes for Formal Institutional Support , 1996 .

[66]  Sue Birley,et al.  Trade-offs in the investment decisons of European venture capitalists , 1996 .

[67]  Dean A. Shepherd,et al.  The nature of information and overconfidence on venture capitalists' decision making , 2001 .

[68]  B. Uzzi,et al.  Embeddedness in the Making of Financial Capital: How Social Relations and Networks Benefit Firms Seeking Financing , 1999, The New Economic Sociology.

[69]  Barbara Krug,et al.  Entrepreneurship in China: Institutions, Organisational Identity and Survival: Empirical Results from Two Provinces , 2002 .

[70]  J. March.  Decisions and Organizations , 1991 .

[71]  Stanley Wasserman,et al.  Social Network Analysis: Methods and Applications , 1994 .

[72]  A. D. Jankowicz,et al.  Intuition in venture capital decisions: An exploratory study using a new technique , 1990 .

[73]  Bat Batjargal.  INTERNET ENTREPRENEURSHIP IN AN EMERGING MARKET: NETWORKS AND PERFORMANCE OF INTERNET STARTUPS. , 2003 .

[74]  K. Hwang.  Face and Favor: The Chinese Power Game , 1987, American Journal of Sociology.

[75]  Ian C. MacMillan,et al.  Criteria Used by Venture Capitalists to Evaluate New Venture Proposals , 1985 .

[76]  James William Coleman,et al.  Competition and the Structure of Industrial Society: Reply to Braithwaite , 1988, American Journal of Sociology.

[77]  B. Kogut,et al.  Social Capital, Structural Holes and the Formation of an Industry Network , 1997 .

[78]  Linda D. Molm,et al.  Risk and Trust in Social Exchange: An Experimental Test of a Classical Proposition , 2000, American Journal of Sociology.

[79]  Scott Shane,et al.  Special Issue on University Entrepreneurship and Technology Transfer: Organizational Endowments and the Performance of University Start-ups , 2002, Manag. Sci..

[80]  Anne S. Tsui.  Management and Organization in the Chinese Context , 2002 .

[81]  Peter V. Marsden,et al.  Social Resources and Mobility Outcomes: A Replication and Extension , 1988 .

[82]  M. Audrey Korsgaard,et al.  Procedural justice in entrepreneur-investor relations , 1996 .

[83]  János Kornai.  The Socialist System: The Political Economy of Communism , 1992 .

[84]  Prescott C. Ensign,et al.  New Venture Creation , 1994 .

[85]  P. McCullagh,et al.  Generalized Linear Models, 2nd Edn. , 1990 .

[86]  Bor-Shiuan Cheng,et al.  The Influence of Relational Demography and Guanxi : the Chinese Case , 1998 .

[87]  Mike W. Peng,et al.  Managerial Ties and Firm Performance in a Transition Economy: The Nature of a Micro-Macro Link , 2000 .

[88]  Toby E. Stuart,et al.  Interorganizational Endorsements and the Performance of Entrepreneurial Ventures , 1999 .