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    Escalation of commitment in venture capital decision making: Differentiating between domestic and international investors

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    Publication type
    FT ranked journal article  
    Author
    Devigne, David
    Manigart, Sophie
    Wright, Mike
    Publication Year
    2016
    Journal
    Journal of Business Venturing
    Publication Volume
    31
    Publication Issue
    3
    Publication Begin page
    253
    Publication End page
    271
    
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    Abstract
    Drawing upon an escalation of commitment framework, this study investigates how differences between cross-border and domestic venture capital investors in emotional, social, and institutional factors affect their decision to terminate an unsuccessful investment. We track the exit outcome of 1060 venture capital investments in 684 European technology companies. Results show that domestic investors have a high tendency to escalate their commitment to a failing course of action, while cross-border investors terminate their investments efficiently, even when investing through a local branch. This is explained by cross-border investors having a lower social and emotional involvement with the project and a lower embeddedness in the local economic and social environment, decreasing individual decision biases. Further, they are affected to a lower extent by normative pressures to further invest from their co-investment network. Local branches of cross-border investors are also shielded from escalation of commitment. We conjecture that their international investment committee acts as an organizational safeguard against individual decision biases. Domestic investors may hence benefit from mimicking the behavior of cross-border investors.
    Keyword
    Cross-Border Investments, Termination, Venture Capital, Escalating Commitment, Divestment
    Knowledge Domain/Industry
    Accounting & Finance
    DOI
    10.1016/j.jbusvent.2016.01.001
    URI
    http://hdl.handle.net/20.500.12127/5370
    ae974a485f413a2113503eed53cd6c53
    10.1016/j.jbusvent.2016.01.001
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