11348 
6492In the venture capital market, fund raising, investment and withdrawal are all prime economic activities, wherein withdrawal is the most important link in the field of venture capital. Previous studies have probed into the factors which might influence withdrawal performance of venture capital, including economic cycle, venture capital reputation, investment experience and operation scale. From the perspective of social relationship network, this paper divides withdrawal performance into the dual perspectives of efficiency and benefits and illustrates 100 venture capital institutions with maximum investment behaviors between 2001 and 2014 as the research subjects. Based on the joint investment events during the 15 years in the 100 institutions, this paper delineates social relationship network draft among these institutions to obtain degree centrality, closeness centrality, betweenness centrality and structural hole degree indicators and starts from the perspectives of efficiency and benefits to examine the influences of social relationship network on withdrawal performance. First of all, this paper takes the overall withdrawal rate of venture capital during sampling period as the measurement indicator to calculate the withdrawal efficiency. As testified by the empirical research results, social relationship network of venture capital has prominent positive influences on the withdrawal efficiency. Secondly, this paper illustrates 506 withdrawal events of the 100 venture capital institutions in the form of IPO through Shanghai Stock Exchange and Shenzhen Stock Exchange from 2000 to 2014. The empirical research results prove that in case of higher degree centrality of venture capital, if investment companies have shorter history from entrepreneurship to IPO, they would easily withdraw the venture capital at a faster speed. All of such results indicate that venture capital in critical positions of social relationship network has more chances to obtain necessary resources and information, more prominent information advantages and information controlling abilities and faster risk investment withdrawal operations. Subsequently, it observes the significantly positive correlation between venture capital degree centrality indicator and IPO, and between corporate PE and buy-and-hold returns（market returns one year after holding and IPO）, which means that venture capital withdrawal has better benefits in critical positions of social network. Finally, this paper explores how venture capital could obtain better performance in advantageous social network positions, concluding that social relationship network of venture capital could improve the quality of invested companies, including higher accounting information quality before IPO, more research and development output after IPO and higher accounting performance after IPO. It has the following contributions. First of all, existing studies mostly measure successful withdrawal（Dang Xinghua et al., 2011）, withdrawal rate（Hochberg et al., 2007）and withdrawal performance of venture capital. Little attention has been paid to the studies on the two indicators, namely withdrawal efficiency and withdrawal benefits. This paper starts from the perspectives of efficiency and benefits to examine the influences of social relationship network built by venture capital through joint investment events on withdrawal performance. And it further explores how venture capital could obtain higher withdrawal performance and enrich relevant studies in the field of venture capital. Secondly, this paper is the beneficial expansion of relevant literature documents related to social relationship network in Chinese venture capital market. Existing studies mainly start from the perspective of individual characteristics of venture capital to evaluate the withdrawal performance of venture capital. By placing venture capital companies under the background of social relationship network, this paper refers to sociology research methods to analyze and test the influences of social relationship network on withdrawal performance. It is the beneficial expansion for literature documents in the field of social relationship. Thirdly, risk investment is a high-risk and high-return process. Venture capital always tries to reduce uncertainty and elevate benefits. If venture capital expects to obtain better withdrawal performance, it requires to reduce the uncertainty of benefits and obtain more scarce resources & information. Therefore, venture capital should also consider its position in social network while improving its investment skills or accumulating investment experience. In this sense, this paper has practice meanings for venture capital to elevate withdrawal performance.
/ Journals / Foreign Economics & Management
Foreign Economics & Management
LiZengquan, Editor-in-Chief
ZhengChunrong, Vice Executive Editor-in-Chief
YinHuifang HeXiaogang LiuJianguo, Vice Editor-in-Chief
Social Relationship Network and Withdrawal Performance of Venture Capital: Investigation from Efficiency and Effectiveness Perspectives
Foreign Economics & Management Vol. 40, Issue 01, pp. 107 - 123 (2018) DOI:10.16538/j.cnki.fem.2018.01.008
Summary
References
Summary
[1] Amit R, Bander J, Zott C. Why do venture capital firms exist? theory and canadian evidence[J]. Journal of Business Venturing, 1998, 13(6):441-466.
[2] Ball R, Robin A, Wu J S. Incentives versus standards: properties of accounting income in four east asian countries[J]. Journal of Accounting and Economics, 2003, 36(3):235-270.
[3] Burt R. Structural Holes[M], MA Harvard University press, 1992.
[4] Bygrave W D. The structure of the investment networks of venture capital firms[J]. Journal of Business Venturing, 1988, 3(2):137-157.
[5] Cai Ning, He Xing. Can Social Networks Improve the Value-added Effect of VC ? Based on the Relationship of Venture Capital Networks and Investment Efficiency [J]. Journal of Financial Research, 2015, (12): 178-193.
[6] Cai Y, Walkling R A, Yang K. The price of street friends: social networks, informed trading, and shareholder costs. Working paper, 2011.
[7] Cohen L, Frazzini A, Malloy C. Sell-side school tie[J]. Journal of Finance, 2010, 65(4):1409-1437.
[8] Cohen L, Frazzini A, Malloy C. The Small World of Investing: Board Connections and Mutual Fund Returns[J]. Journal of Political Economy, 2008, 116(5):951-979.
[9] Cumming D, Johan S A. Provincial preferences in private equity[J]. Financial Markets Portfolio Management, 2006, 20(4):369-398.
[10] Dang Xinghua, Dong Jianwei, Wu Hongchao. Venture Capital Firms’ Network Positions and Their Successful Exits: Empirical Evidence from China’s Venture Capital Industry [J]. Nankai Business Review, 2011 (2): 82-91.
[11] Das S, M Jagannathan, A Sarin. Private equity returns: an empirical examination of the exit of venture-backed companies[J]. Journal of Investment Management, 2002, 1(1):1-26.
[12] Ferrary M, Granovetter M. The role of venture capital firms in silicon valley’s complex innovation network[J]. Economy and Society, 2009, 38(2): 326-359.
[13] Gompers P A, Kovner A, Lerner J, Scharfstein D. Venture capital investment cycles: the impact of public markets[J]. Journal of Financial Economics, 2008, 87(1):1-23.
[14] Gompers P A, Lerner J. Money chasing deals? the impact of fund inflows on private equity valuations[J]. Journal of Financial Economics, 2000, 55(2):239-279.
[15] Granovetter M. Economic action and social structure: the problem of embeddedness[J]. American Journal of Sociology, 1985, 91(3):481-510.
[16] Gu Z, Li G, Li Z, Yang Y. Friends in need are friends indeed: the effects of social ties between financial analysts and mutual fund managers, Working Paper, Chinese University of Hong Kong, 2014.
[17] Guler I, Guillen M F. Home country networks and foreign expansion: evidence from the venture capital industry[J]. Academy of Management Journal, 2010, 53(2):390-410.
[18] Hochberg Y V, Ljungqvist A, Lu Y. Whom you know matters? venture capital networks and investment performance[J]. Journal of Finance, 2007, 62(1):251-301.
[19] Ishii Joy, Y H Xuan. Acquirer target social ties and merger outcomes[J]. Journal of Financial Economics, 2014, 112(3):344-363.
[20] Kaplan S N. Private equity performance: returns, persistence, and capital flows. Journal of Finance[J], 2005, 60(4):1791-1823.
[21] Kothari S P, Leone Andrew J, Wasley Charles E. Performance matched discretionary accrual measures[J]. Journal of Accounting and Economics, 2005, 39(1):163-197.
[22] Lerner J. The syndication of venture capital investments[J]. Financial Management, 1994, 23(3):16-27.
[23] Lin Nan. Social resources and instrumental action[M]. Sage Publications, 1982.
[24] Lin Nan. Social resources and social mobility: a structural theory of status attainment[M]. Cambridge University Press, 1990.
[25] Liu M, Zhang J A, Hu B. Domestic VCs versus foreign VCs: a close look at the Chinese venture capital industry[J]. International Journal of Technology Management, 2006, 34(1):161-184.
[26] Nahata R. Venture capital reputation and investment performance[J]. Journal of Financial Economic, 2008, 90(2):127-151.
[27] Pan Hongbo,Yu Minggui. The Relationship between Politics, Institutional Environments and Private Enterprises' Access to Bank Loans [J]. Management World, 2008 (8): 9-21.
[28] Park S, Luo Y. Guanxi and organizational synamics: organizational networking in Chinese organizations[J]. Strategic Management Journal, 2001, 22(5):455-477.
[29] Piotroski J D, T J Wong. Institutions and information environment of chinese listed firms. Working paper, Stanford University, 2011.
[30] Qian Ping, Zhang Wei. Returns on Chinese Venture Capital Investment and Its Determinants [J]. Economic Research Journal, 2007 (5): 78-90.
[31] Sapienza H J, Manigart S, Vermeir W. Venture capitalist governance and value-added in four countries[J]. Journal of Business Venturing, 1996, 11(6): 439-469.
[32] Sorenson O, Stuart T. Syndication networks and the spatial distribution of venture capital investments[J]. American Journal of Sociology, 2001, 106(6):1546-1588.
[33] Stuart T E, S Yim. Board interlocks and the propensity to be targeted in private equity transactions[J], Journal of Financial Economics, 2001, 97(1): 174-189．
[34] Tykvova T. Who chooses whom? syndication, skills and reputation[J]. Review of Financial Economics, 2007, 16(1): 5-28.
[35] Wu Wenfeng, Wu Chongfeng, Rui Meng. Political Connection and Effective Tax Rate: Evidence from China [J]. Management World, 2009 (3): 134-142.
[36] Yang Junping, Tang Lubin, Yu Xiaoyu. Entrepreneurial Network, Entrepreneurial Learning and New Venture’s Growth [J]. Management Review, 2013 (11): 24-33.
[37] Zhang Jun, Xu Xiaoqin. A Research on the Choice of Venture Capital Exit Channel in China [J]. Science Economy Society, 2004 (3): 52-55.
[38] Zhang Xueyong, Zhang Yeqing. Venture Capital，Innovation Capability and Post-IPO Performance [J]. Economic Research Journal, 2016 (10): 112-125.
[39] Zhao Jingmei, Fu Lili, Shen Yu. Venture Capital and Firms’ Production Efficiency: Helping Hand or Grabbing Hand? [J]. Journal of Financial Research, 2015 (11): 159-174.
Cite this article
Sun Shuwei, Yu Chunling. Social Relationship Network and Withdrawal Performance of Venture Capital: Investigation from Efficiency and Effectiveness Perspectives[J]. Foreign Economics & Management, 2018, 40(1): 107–123.
Export Citations as:
For
ISSUE COVER
RELATED ARTICLES
