Does Social Proximity Enhance Business Partnerships? Theory and Evidence from Ethnicity's Role in U.S. Venture Capital

Hegde, Deepak; Tumlinson, Justin

doi:10.1287/mnsc.2013.1878

Cited by 169 publications

(110 citation statements)

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“…Based on offers that entrepreneurs receive from VCs in their initial rounds of financing, Hsu (2004) shows that entrepreneurs pay a premium to affiliate with top-tier investors, suggesting that entrepreneurs anticipate receiving more value-added from these investors. Others document that VCs add value by guiding and professionalizing young firms (e.g., Lerner, 1995;Hellman and Puri, 2002;Chemmanur et al, 2011) and providing access to superior resource networks (e.g., Hsu, 2006;Hochberg et al, 2007;Hegde and Tumlinson, 2014). Complementing this work, we highlight an intermediary role of VCs that has received limited attention in this literature-opening access to debt channels of financing-and devise a lever for identifying its effects.…”

Section: Introductionmentioning

confidence: 58%

Patent Collateral, Investor Commitment, and the Market for Venture Lending

2014

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The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent market is too illiquid to shape debt financing, we find that intensified patent trading increases the annual rate of startup lending, particularly for startups with more redeployable (less firm-specific) patent assets. Exploiting differences in venture capital (VC) fundraising cycles and a negative capital-supply shock in early 2000, we also find that the credibility of VC commitments to refinance and grow fledgling companies is vital for such lending. Our study illuminates friction-reducing mechanisms in the market for venture lending, a surprisingly active but opaque arena for innovation financing, and tests central tenets of contract theory.

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Section: Introductionmentioning

confidence: 58%

Patent Collateral, Investor Commitment, and the Market for Venture Lending

2014

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“…Finally, a broader literature would suggest that spatial and social proximity may reduce the costs of screening exchange partners (e.g., Hegde & Tumlinson 2014;Sorenson & Stuart 2001).…”

Section: The Online Shadow Of Offline Signals: Which Sellers Get Contmentioning

confidence: 99%

The Online Shadow of Offline Signals: Which Sellers Get Contacted in Online B2B Marketplaces?

Lanzolla

Frankort

2016

AMJ

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Abstract:This article extends the understanding of what impels buyers to contact particular sellers in online business-to-business (B2B) marketplaces, which are typically characterized by sparse social structures and concomitant limitations in observing social cues. Integrating an institutional perspective with signaling theory, our core argument is that offline seller characteristics that are visible online-in particular, geographic location and legal statusconvey credible signals of seller behavior because they provide buyers with information on sellers' local institutional quality and the institutionallyinduced obligations and controls acting on sellers. Using unique data from a large Italian online B2B marketplace between the fourth quarter of 1999 and July 2001, we find that both sellers' local institutional quality and their legal statuses affect a buyer's likelihood of contacting a seller. Moreover, consistent with the idea that a buyer's own local institutional quality generates a relevant reference point against which sellers are evaluated, we find that a buyer is progressively more likely to contact sellers the higher their local institutional quality relative to the buyer. Jointly, our findings imply that in online B2B marketplaces, signals conveyed by sellers' geographic locations and legal statuses may be substantive sources of competitive heterogeneity and market segmentation. Academy of Management JournalThe Forthcoming, Academy of Management Journal * Both authors contributed equally to the research in this article. Associate Editor Heli Wang provided excellent guidance and three anonymous reviewers provided detailed and constructive comments and suggestions. We thank the B2B marketplace for sharing proprietary data, Kaizad Doctor for research assistance, Francesco Calderoni for advice on the measurement of corruption and organized crime in Italy, Enrico Spaziani at the Italian National Institute of Statistics (ISTAT) for advice on Italian territorial statistics, and Marco Bitetto, Daniela Latorre, and Tecla Ubaldi for generous advice on Italian commercial law. We also thank Argyro Avgoustaki, Charles Baden-Fuller, Mariachiara Barzotto, Gokhan Ertug, Igor Filatotchev, Santi Furnari, Stefan Haefliger, Wilko Letterie, Joanne Oxley, Carol Saunders, and audiences at Ca' Foscari University of Venice, HEC Lausanne, Singapore Management University, University of Groningen, and Warwick Business School for helpful comments and discussions related to this article. A predecessor version of this study was presented at the 2013 Academy of Management Annual Conference in Lake Buena Vista, Florida. During part of the research for this article, Gianvito Lanzolla was a Visiting Scholar at London Business School and Hans Frankort was a Visiting Scholar at the University of Toronto's Joseph L. Rotman School of Management. The authors gratefully acknowledge the support received at these two institutions.

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“…For example, Kossinets and Watts investigate the role of homophily with respect to individual's occupation, gender and age on the formation of triadic closure [12]; Currarini et al find that U.S. high school individuals tend to form friendship with people of the same race [3]; Hegde et al suggest that the U.S. venture capitalists are more likely to select start-ups with co-ethnic executives as partners for investment [7]; Louch shows that ascribed homophily (e.g., sex or race) and choice homophily (e.g., religion) can improve the likelihood of dyads relationship in personal network [17]; and Ruef et al find that organizational founders in the U.S. are highly homogeneous by gender, ethnicity and status [26].…”

Section: Introductionmentioning

confidence: 99%

Link Formation on Twitter: The Role of Achieved Status and Value Homophily

Sun¹,

Rui²

2017

Proceedings of the 50th Hawaii International Conference on System Sciences (2017)

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Abstract-Homophily has been a widely recognized dominant factor in offline social network connection, which refers to one's propensity to seek interactions with others of similar status or values. Existing studies regarding homophily factors have been limited mostly to offline sociodemographic characteristics, such as race, gender, religion, education and occupation, which may not necessarily manifest homophily in online social network. Some researchers dabble in online social network, but they extract homophily characteristics from static user profile or link data, which has not incorporated the dynamic process of social network. To better understand the key factors in the establishment of online relationship, we explore a large data set on Twitter, which contains all initiated links by 1453 organizational Twitter users over three months. An initiated link refers to organization following a user who is currently not a follower of the organization. We crawl data on a daily basis and monitor whether the initiated one-way link ends up with a two-way relationship. Based on the established homophily theory, we define two online homophily factors: achieved status homophily (estimated by the gap of the followers count), value homophily (measured by the overlap ratio of common followee, Pearson correlation, and Cosine similarity between two users' tweets, respectively). We find that both homophily factors play a key role in the formation of online reciprocal relationship, and the effect of status homophily is larger for superior followee (one who has more followers than the corresponding organization) than for inferior followee (one who has less followers than the corresponding organization). Our finding not only extends the offline "individualindividual" homophily theory to the new online "organizationindividual" relationship, but also provides Twitter users insight into extending their social network by strategically targeting followee.

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Does Social Proximity Enhance Business Partnerships? Theory and Evidence from Ethnicity's Role in U.S. Venture Capital

Cited by 169 publications

References 28 publications

Patent Collateral, Investor Commitment, and the Market for Venture Lending

Patent Collateral, Investor Commitment, and the Market for Venture Lending

The Online Shadow of Offline Signals: Which Sellers Get Contacted in Online B2B Marketplaces?

Link Formation on Twitter: The Role of Achieved Status and Value Homophily

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