Editor's Choice The Importance of Trust for Investment: Evidence from Venture Capital
Laura Bottazzi (),
Marco Da Rin () and
Thomas Hellmann ()
Review of Financial Studies, 2016, vol. 29, issue 9, 2283-2318
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 firmsâ€™ 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.
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Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:29:y:2016:i:9:p:2283-2318.
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