Editor's Choice The Importance of Trust for Investment: Evidence from Venture Capital

Laura Bottazzi, Marco Da Rin and Thomas Hellmann

The Review of Financial Studies, 2016, vol. 29, issue 9, 2283-2318

Abstract: We examine the effect of trust in venture capital. Our theory predicts a positive relationship of trust with investment, but a negative relationship with success. Using a hand-collected dataset of European venture capital deals, we find that the Eurobarometer measure of trust among nations positively predicts venture capital firms’ investment decisions, but that it has a negative correlation with successful exits. Our theory also predicts that earlier stage investments require higher trust, that syndication is more valuable in low-trust situations, and that higher trust investors use more contingent contracts. The empirical evidence supports these predictions. Received July 17, 2012; accepted March 15, 2016 by Editor Laura Starks.

Date: 2016
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