Essays on Social Networks and Investments

Date
2021
Authors
Kesici, Emre
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Abstract

This dissertation explores the impact of social networks on investments. The first essay examines how information acquisition through social media affects venture capital (VC) investments into VC-backed startups. We collect a unique data set from Twitter API to measure the impact of portfolio companies owned social media (OSM) and earned social media (ESM) on the structure of VC investments. We find evidence consistent with the hypothesis that startup firms' social media engagement affects the staging of VC financing, the VC syndicate structure, and the probability of a successful exit. If a portfolio company's social media accounts are more active and the company has a higher engagement volume with its followers, VC firms reduce the extent of stage financing and are less likely to syndicate with each other in financing such a portfolio company. The second essay uses social network data from Facebook to examine the impact of social connections on equity home bias in actively managed equity mutual funds. We find that U.S. fund managers invest more in firms headquartered in locations to which the fund manager is more likely to be socially connected. For managers of funds that invest in non-US equities, a one standard deviation increase in the social connectedness index is associated with a 1.283% increase in the stock holdings. For managers of domestic U.S. funds, a one standard deviation increase in the social connectedness index to a particular U.S. county is associated with a 0.026% increase in stock holdings. The third essay uses social network data from Facebook to examine how information acquisition through social connections affects venture capital (VC) investments into VC-backed startups. We use a unique data set from Facebook to measure the impact of social proximity of portfolio companies and venture capital investors on the structure of VC investments. We find evidence consistent with the hypothesis that social concentration between VC investors and portfolio firms decrease information asymmetry, increase investor attention and familiarity, reduce coordination cost among VC firms, and improves monitoring outcomes. If a portfolio company's location is more socially connected to location of a VC firm, VC firms reduce the extent of stage financing and are less likely to syndicate with each other in financing such a portfolio company.

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Keywords
Home Bias, Information Acquisition, Social Media, Social Networks, Stage Financing, Venture Capital
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Department
Finance