The Social Network Relationship Between PE Managers And Executives And Enterprise Innovation

In 1946,Private Equity("PE")came into being in the United States.After 70 years of development,it has become an important financing measure in the capital market and has a very important impact on economic development.With the continuous development of economic globalization and the gradual maturity of China's market economy system,China has become one of the fastest growing economies in the world.More than this,China's capital market is constantly improving itself and growing maturity.PE has become the most active element of China's capital market.According to the statistics of Qingke IPO Research Center,the scale of capital that can be invested in PE market in 2018 is 2.0035 trillion yuan,and the total investment in PE market is 852.716 billion yuan.It is undeniable that PE has become an important source of financing for enterprises.As a professional investment institution,PE usually implements a series of activities to participate in the management while injecting funds into the invested companies.Through the influence of corporate governance and financial decisions,PE can reduce agency costs and improve the quality and effectiveness of company's decision-making,maximizing the value of company.The impact of PE on the performance and value of invested companies is also a research hotspot in academia.Innovation,as a necessary condition for enterprises to find vitality and outlets,determines the company's development direction,scale and speed.The influencing factors of the existing literature on enterprise innovation mainly focus on internal governance,management personnel characteristics of the enterprise and external policy factors.There are relatively few researches on the impact of PE on enterprise innovation,and there is still a big gap in this aspect.Throughout the existing literature,it mainly studies the impact of PE on corporate governance mechanism and managerial decision-making,and then company's value from the institution level.However,few literatures study the impact on company's value from the individual level of PE managers.In fact,the relationship between PE managers and the executives of invested companies cannot be ignored.What's more,this relationship plays an important role in the operation of economic and social organizations.Social network theory also emphasizes that economic people change their preferences and decisions depending on the behavior of others.That is,market participants are not only influenced by their own internal cognitive and psychological factors,but also by their external social relationships.What is more,their growth experience and social resume will also exert subtle or profound influence on their cognition and psychology,which in turn affects their decision-making and behavior in economic organizations.More importantly,unlike the individual-centered culture of Western countries,China pursues Confucian civilization.China has unique humanistic culture,and closer emotional connection.The social network is more special that is formed by the unique social background and cultural environment of China.The results of foreign research on social network relationship may not be directly applicable in China.Therefore,this paper will focus on the impact of social network relationship between PE managers and executives on corporate innovation behavior.This paper takes the company with a background of PE investment in China from 2006 to 2016 as the research object,this paper studies the impact of social network relationship between PE managers and executives on the innovation of invested companies.Our study found that the social network relationship between PE managers and executives has a significant positive impact on corporate innovation behavior,and this promotion effect is greater in enterprises registered in province with lower marketization and private enterprises.In further analysis,we found that if foreign-funded PE's managers have social network relationship with executives,the promotion effect on innovation is more obvious.The larger the scale of PE investment,the better the innovation promotion effect.In addition,we found that the social network relationship between PE managers and executives can promote enterprise innovation in industries with high innovation dependence.To enhance the accuracy of results,we conducted a series of robustness tests and endogenous treatments,and the conclusions were still consistent.The contributions of this study are as follows:(1)In the past,research that focused on PE-affected enterprises is based on institutional factors,such as whether or not PE enter and PE characteristics(nature of property right,shareholding ratio,holding period).Scholars researched on the influence of above-mentioned factors on company's salary performance sensitivity,IPO market performance,corporate investment and financing.This paper studies the impact of social network relationship between PE managers and executives on enterprise innovation,and analyzes the interaction between the two from individual level,which not only enriches literature that studies the impact of corporate innovation,but also helps us better understand the role of PE managers.(2)In the past,the research on social network relationship mainly started from the relationship between directors or that between directors and executives,lacking the research on social network relationship between PE and company managers.Therefore,the research in this paper enriches the literature on executives' social network relationships.(3)This paper considers the influence of factors such as marketization level,ownership nature and PE characteristics on the role of social network,which enables us to deeply understand the differences in the role of social network relationships under different institutional environments,and the different characteristics of PE on the motivation and effect of influencing innovation behavior of invested companies.(4)The conclusions of this paper have important reference significance for enterprises to use PE's advanced management technology and industry experience to improve their innovation ability.PE can also better allocate resources and personnel,promote enterprise innovation output,then help enterprises use innovation to improve enterprises performance,achieving a successful exit.