Management Buy-outs and Venture Capital

Management Buy-outs and Venture Capital

Into the Next Millennium

Edited by Mike Wright and Ken Robbie

This book presents up-to-date evidence on the issues facing financiers and intermediaries involved in venture capital and management buy-outs. It provides a comprehensive review of existing literature and an analysis of international trends in market development as well as a global comparison of the major issues.

Chapter 5: The role of trust in the informal investor's investment decision: an exploratory analysis

Mark Dibben, Richard Harrison and Colin Mason

Subjects: economics and finance, industrial organisation

Extract

Page 115 5.  The role of trust in the informal investor’s investment decision: an exploratory analysis  Mark Dibben, Richard Harrison and Colin Mason Introduction Research into the role of informal venture capital in financing the development of entrepreneurial ventures has grown significantly in North America and, more recently,  Europe (Freear et al., 1996; Harrison and Mason, 1996a; Mason and Harrison, 1995a, 1995b, 1996a). This research can be characterised in three ways. First, it has  been and remains primarily empirical in nature, reflecting the continuing need to ‘put boundaries on our ignorance’ (Wetzel, 1986, p. 132) of what is still largely an  invisible and secretive marketplace (Freear et al., 1996; Harrison and Mason, 1996a; 1996b). Second, it has had a very strong public policy and prescriptive  emphasis, focused on understanding how the market operates and identifying mechanisms by which it could be made to work more efficiently and effectively (Wetzel,  1986; Harrison and Mason, 1996a, 1996b; Suomi and Lumme, 1994; Mason, 1996). Third, and partly as a consequence of these two trends, research on informal  venture capital has not been characterised to date by a high level of theoretical sophistication, although recent research has considered the applicability of the pecking  order hypothesis (Harrison and Mason, 1991), decision theory (Landstrom, 1995; Riding et al., 1995), the economic analysis of altruism (Sullivan and Miller, 1990),  and agency theory (Landstrom, 1993; Fiet, 1995a; 1995b). In this chapter we extend this third strand of enquiry to explore the relevance of the concept of trust to...

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