Review of Financial Studies Vol. 29 No. 9 2016
The Importance of Trust for Investment: Evidence from Venture Capital
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.
- Volume
- 29
- Issue
- 9
- Pages
- 2283-2318
- Sources
- bibtex:phds-export.bib