The Effects of Interfirm Networks on Corporate Risk-Taking: Korean Venture Capitals Investing in Younger Start-Ups

Most research on the determinants of corporate risk-taking behaviors has focused on factors that are internal to organizations, such as prior performance and organizational slack. This research aims to shed light on a factor that is external to organizations: interfirm networks. To examine networks’ effects on risk-taking, this research takes the case of Korean venture capitals that consider investing in younger firms as risk-taking. Network theorists have argued that advantageous positions in social networks provide informational benefits through which organizations achieve competitive advantages in reducing actual risks taken in managerial decisions. Based on an analysis of an inter-venture capital network, this research shows that the venture capitals whose connections span across different groups—non-redundant connections—invest in younger firms, compared to the ones whose connections are based on similar groups-redundant connections.