Social capital at venture capital firms and their financial performance: Evidence from China

TL;DR

This study investigates how social capital influences the financial performance of Chinese venture capital firms, revealing weak correlations and a lack of mature social networks in the industry.

Contribution

It introduces a hybrid model combining syndicated social networks and latent-variable analysis to examine social capital's impact on VC performance in China.

Findings

Weak correlation between social capital and performance in Chinese VC firms

Chinese VC firms lack mature social capital links

Proposed model effectively tests social capital-performance relationships

Abstract

This paper studies the extent to which social capital drives performance in the Chinese venture capital market and explores the trend toward VC syndication in China. First, we propose a hybrid model based on syndicated social networks and the latent-variable model, which describes the social capital at venture capital firms and builds relationships between social capital and performance at VC firms. Then, we build three hypotheses about the relationships and test the hypotheses using our proposed model. Some numerical simulations are given to support the test results. Finally, we show that the correlations between social capital and financial performance at venture capital firms are weak in China and find that China's venture capital firms lack mature social capital links.