The Importance of Trust for Investment: Evidence from Venture Capital

Bottazzi, Laura, Da Rin, Marco and Hellmann, Thomas (2016) The Importance of Trust for Investment: Evidence from Venture Capital. Review of Financial Studies, 29 (9). pp. 2283-2318.

Abstract

We examine the effect of trust on financial investment and contracting decisions in a micro-economic environment where trust is exogenous. Using hand-collected data on European venture capital, we show that the Eurobarometer measure of trust among nations significantly affects investment decisions. This holds even after controlling for investor and company fixed effects, geographic distance, information and transaction costs. The national identity of venture capital firms' individual partners further contributes to the effect of trust. Education and work experience reduce the effect of trust but do not eliminate it. We also examine the relationship between trust and sophisticated contracts involving contingent control rights and find that, even after controlling for endogeneity, they are complements, not substitutes.

Item Type: Article
Keywords: Entrepreneurship, Finance, Social Capital, Trust, Financial Contracts, Venture Capital, Corporate Governance, finance
Subject(s): Entrepreneurship
Finance
Related URLs:
Date Deposited: 23 Mar 2016 15:43
Date of author-version deposit: 24 May 2016
Last Modified: 12 Jul 2017 08:29
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6084

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