Resource Accumulation Through Economic Ties: Evidence from Venture Capital

Yael V. Hochberg, Laura A. Lindsey, and Mark M. Westerfield
Journal of Financial Economics 2015, 118(2): 245-267
Featured in the Harvard Law School Forum on Corporate Governance and Financial Regulation

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Summary

We characterize VC firm resources using factor analysis, and we develop a methodology to distinguish motives for coinvestment. Coinvestment is not based on resource similarity; instead it serves to mix value-added resources with capital.

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.

Cite as

Hochberg, Yael V., Laura A. Lindsey, and Mark M. Westerfield. 2015. “Resource Accumulation Through Economic Ties: Evidence from Venture Capital.” Journal of Financial Economics 118(2): 245–267. https://doi.org/10.1016/j.jfineco.2015.06.008

BibTeX

@article{HochbergLindseyWesterfield2015,
  author  = {Hochberg, Yael V. and Lindsey, Laura A. and Westerfield, Mark M.},
  title   = {Resource Accumulation Through Economic Ties: Evidence from Venture Capital},
  journal = {Journal of Financial Economics},
  year    = {2015},
  volume  = {118},
  number  = {2},
  pages   = {245--267},
  doi     = {10.1016/j.jfineco.2015.06.008},
  url     = {https://doi.org/10.1016/j.jfineco.2015.06.008}
}

The PDF posted here is the authors’ manuscript (February 2015 draft). The version of record is available from the journal at the DOI above. Updated October 5, 2026.