Who Can Help When Information Is Needed? Differential Effects of Inward, Outward and Reciprocal Ties

Abstract

Investing in a distant industry, an agent in a network consisting of directional ties may suffer a decline in performance due to its lack of industry-specific knowledge. We argue that not every contact in such a network is able to advise the focal agent equally well because contacts connected by variant tie types possess different industry-specific knowledge and tie directionality affects the likelihood of having contacts that possess needed knowledge. We test our hypotheses based on a population of venture capital (VC) firms spanning the entirety of Chinese VC history from 1991 to 2017, supplemented by qualitative interviews with VC partners. Our findings indicate that the focal lead VC benefits more from contacts connected by outward ties than inward ties, while contacts connected by reciprocal ties provide the most informational benefits. Furthermore, cross-border contacts provide the focal VC informational benefits to improve its performance.