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Take the money or run? Investors' ethical reputation and entrepreneurs' willingness to partner
Drover, Will Wood, Matthew Fassin, Yves
Drover, Will
Wood, Matthew
Fassin, Yves
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2014
Journal
Journal of Business Venturing
Book
Publication Volume
29
Publication Issue
6
Publication Begin page
723
Publication End page
740
Publication NUmber of pages
18
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Abstract
Drawing on the multi-principal–agent perspective, this research models the influence of venture capitalists' reputation for ethical behavior on entrepreneurs' willingness to partner decisions. We test our model using a two-study design. Study one, a conjoint experiment, revealed that explicit knowledge of past unethical behavior negatively affects entrepreneurs' willingness to partner. Interaction effects revealed that factors previously shown to influence the entrepreneurs' evaluations—investor value-add and investment track record—become largely contingent upon and often subjugated by investors' ethical reputation. Study two, a traditional between-subjects scenario experiment, revealed that when entrepreneurs develop their own perceptions about the ethicality of an investor's prior behaviors, the ethical dimension remains highly influential. Further, we find that as the consequences of rejecting funding become more severe (e.g., possible bankruptcy), entrepreneurs become increasingly willing to partner with unethical investors. We also find that high fear of failure entrepreneurs are less willing to partner with unethical investors than their low fear of failure counterparts.
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Keywords
Venture Capital, Business Ethics, Investor Reputation, Investor Selection, Conjoint Analysis