The Role of Social Capital and Cultural Biases in the Investment Behavior of Foreign High-Tech Firms

75 Pages Posted: 19 Mar 2011

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Yingmei Cheng

Florida State University - College of Business

Chaopeng Wu

Xiamen University

Date Written: March 15, 2011

Abstract

We investigate the role of social capital and cultural biases in investment by foreign high-tech firms in China. We find social capital of provinces in the host country, social capital of the foreign company’s home country, and the cultural difference between the two countries are important factors in foreign direct investment. Provinces in China with a higher level of social capital attract more foreign investment. Foreign firms in provinces of higher social capital are more likely to establish joint ventures with local partners, invest more in research and development (R&D), and hire more R&D personnel. Foreign firms from countries with higher uncertainty avoidance and greater cultural difference from China give more weight to the provincial-level social capital in China. The conclusions do not change under instrumental variable regressions, and the results still hold with the city-level measure of social capital.

Keywords: Social capital, foreign investment

JEL Classification: F20

Suggested Citation

Ang, James S. and Cheng, Yingmei and Wu, Chaopeng, The Role of Social Capital and Cultural Biases in the Investment Behavior of Foreign High-Tech Firms (March 15, 2011). Available at SSRN: https://ssrn.com/abstract=1786535 or http://dx.doi.org/10.2139/ssrn.1786535

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Yingmei Cheng (Contact Author)

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States
850-644-7869 (Phone)

Chaopeng Wu

Xiamen University ( email )

Xiamen, Fujian 361005
China

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