This study analyzes how investor attention to industries affects firm valuations in the venture capital market. Relying on aggregate search frequency in Baidu, we construct a direct measure of investor attention to industries (ASVI). Our results show that an increase in ASVI predicts higher firm valuations. We prove that the price increase is an attention-induced result rather than an information-based fundamental premium, which is due to the evidence of a long-run reversal of firm valuations and worse performance of VC investments. Our findings continue to hold across a wide range of robustness checks, including sample selection, endogeneity, alternative measures of ASVI. We also find that syndicated investments and involvement of experienced venture capitalists attenuate the effect of ASVI on firm valuations, further supporting the attention-induced view.

This paper analyzes the relationship between online social networks and inter-firm investment similarity. Using mutual friendships of senior officers on Sina Weibo as proxies for online social connections, we find that companies, whose senior officers share online connections, exhibit more similar levels of capital investments. In addition, the baseline result is robust in subsamples of senior officers' first like on Weibo, and continue to hold for a battery of robustness and endogeneity tests. One possible underlying mechanism through which social networks influence corporate investment similarity is that senior officers learn privileged information from their social connections, which is supported by examining the interaction effect of analyst coverage and online social connections. We further show that this investment similarity is more pronounced in the condition that company pairs are connected by more reputable senior officers, or in the case of under-investing.