TY - JOUR
T1 - Resource accumulation through economic ties
T2 - Evidence from venture capital
AU - Hochberg, Yael V.
AU - Lindsey, Laura
AU - Westerfield, Mark M.
N1 - Funding Information:
The authors thank Harry DeAngelo, Waverly Ding, Thomas Hellmann, Anne Marie Knott, Nagpurnanand Prabhala, David Robinson, Rebecca Zarutskie, colleagues at Northwestern University, ASU and USC, and seminar participants at UCLA, UCSD, University of Washington, Washington University St. Louis, Boston University, University of British Columbia, University of Rochester, Hong Kong University, University of Oregon, the Western Finance Association 2011 Meeting, the Financial Intermediation Research Society, the Kauffman–Duke Entrepreneurship Conference, the Kauffman Foundation Early-Stage Investing Conference, the Entrepreneurial Finance and Innovation Conference, and the California Corporate Finance Conference for helpful comments and suggestions. Vineet Bhagwat provided excellent research assistance. Hochberg gratefully acknowledges funding from the Heizer Center for Private Equity and Venture Capital, the Center for Research in Technology and Innovation, and the Zell Center for Risk Research at the Kellogg School of Management.
Publisher Copyright:
© 2015 Elsevier B.V.
PY - 2015/11
Y1 - 2015/11
N2 - Ties between similar partners in economic and financial networks are often attributed to concerns about agency costs. In this paper, we distinguish the underlying motives for tie formation between sets of potential partners in the network, thus informing the relative importance of agency cost and resource accumulation in tie formation across firms. We develop a robust and generalizable methodology that allows for the inference of similarity and/or cumulative advantage motives in the potential presence of resource trading. We estimate the model using venture capital (VC) co-investment networks, employing factor analysis to characterize orthogonal, interpretable resources for VC firms. In the VC setting, value-added resources other than capital appear to be exchanged for capital, but not for one another. We find little evidence for similarity motives as the primary driver of matching, suggesting that concerns over agency conflicts in partnering are dominated by the desire to accumulate higher levels of certain resources.
AB - Ties between similar partners in economic and financial networks are often attributed to concerns about agency costs. In this paper, we distinguish the underlying motives for tie formation between sets of potential partners in the network, thus informing the relative importance of agency cost and resource accumulation in tie formation across firms. We develop a robust and generalizable methodology that allows for the inference of similarity and/or cumulative advantage motives in the potential presence of resource trading. We estimate the model using venture capital (VC) co-investment networks, employing factor analysis to characterize orthogonal, interpretable resources for VC firms. In the VC setting, value-added resources other than capital appear to be exchanged for capital, but not for one another. We find little evidence for similarity motives as the primary driver of matching, suggesting that concerns over agency conflicts in partnering are dominated by the desire to accumulate higher levels of certain resources.
KW - Matching
KW - Network formation
KW - Organizational networks
KW - Syndication
KW - Venture capital
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U2 - 10.1016/j.jfineco.2015.06.008
DO - 10.1016/j.jfineco.2015.06.008
M3 - Article
AN - SCOPUS:84946476498
SN - 0304-405X
VL - 118
SP - 245
EP - 267
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -