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.


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.

Item Type: Article
Keywords: entrepreneurship, finance, social capital, trust, financial contracts, venture capital, corporate governance
Subject(s): Entrepreneurship
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Date Deposited: 23 Mar 2016 15:43
Date of author-version deposit: 24 May 2016
Last Modified: 26 Sep 2018 10:52
Funders: not applicable

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