Resource Accumulation Through Economic Ties: Evidence from Venture Capital

49 Pages Posted: 6 Mar 2015 Last revised: 5 Feb 2016

See all articles by Yael V. Hochberg

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department

Mark M. Westerfield

University of Washington

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2015

Abstract

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.

Keywords: Network Formation, Organizational Networks, Venture Capital, Syndication, Matching

JEL Classification: G24, L14

Suggested Citation

Hochberg, Yael V. and Lindsey, Laura Anne and Westerfield, Mark M., Resource Accumulation Through Economic Ties: Evidence from Venture Capital (February 1, 2015). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2573972

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Laura Anne Lindsey (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Mark M. Westerfield

University of Washington ( email )

Box 353200
Seattle, WA 98195
United States

HOME PAGE: http://www.markwesterfield.com

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