The Impact of Venture Capital on Corporate Social Performance

With recent major changes in economies and the environment, companies’ engagement to social responsibility and towards its different stakeholders is becoming increasingly important in investment decisions. Given the importance of venture capital (VC) in promoting innovation and performance, the purpose of this paper is to provide an understanding of its social impact on invested companies. Literature on private equity has largely focused on financial impacts while there is little research on how VC influences social responsibility of invested companies. The supporters of the stakeholder theory defend a largely positive relationship through investors’ activism in the companies’ governance, strategy and investment decisions, whereas the classical theory suggests a negative impact if investors seek financial profitability rather than social value. The purpose of this paper is to provide a review of the existing literature on the role of venture capital in promoting corporate social responsibility (CSR) within invested companies and its impact on corporate social performance (CSP). To do so, a detour is necessary to review the foundations of CSP and to identify the main conceptual frameworks and controversies for measuring it. Based on our literature review, hypotheses and a conceptual framework are proposed to explain the relationship between venture capital and social performance of VC-backed firms.