The Evolution of Chinese Angels: Social Ties and Institutional Development

Abstract

AbstractInformed by Mike Wright's insight on entrepreneurial finance research problems, we examine how Chinese angel finance has evolved with institutional changes over two decades. Our longitudinal cases explore the changing roles of personal ties within strengthening regulatory institutions. Rather than the diminishing role anticipated, we found that personal ties remained vital for investment decisions. Although the improved regulatory environment influenced the extent and volume of investment, encouraging greater and longer investments, personal ties still informed decisions. We conclude that angel finance practice has evolved to match the changing Chinese environment. Social ties no longer comprehensively determine investment decisions. Instead, personal ties complement the improving environment. The trust embodied in ties continues to facilitate deal‐making by quick decisions and simple contracts. Importantly, we noted how trust reshaped moral hazards and agency problems through the moral obligations of ties. Thus, trust in the individual took more account of the business, but remained centred on personal integrity. We also found that ties with government officials, historically vital in uncertain environments, had become much less important as confidence in the regulatory regime improved. The paper contributes to our understanding of institutions and practices. It highlights culture's continuing role by addressing Mike Wright's concerns and using his guidance.