Signaling Trustworthiness in Investments: An Experimental Study. Boulu-Reshef, B., Kuechle, G., & Rohland, L. Working Paper SSRN 3190425, 2018.
Signaling Trustworthiness in Investments: An Experimental Study [link]Paper  abstract   bibtex   
Entrepreneurs may differentiate their ventures and attract investments by advertising that their firm produces positive externalities for society. Such types of investment opportunities are casually referred to as “impact investment'' by practitioners. Thereby, an entrepreneur's decision on a social project as well as an investor's interest in it can be driven by various factors. This paper studies the effect of altruistic motives, fiscal motives, and reputational motives on investment behavior in contexts in which the effect of trust is accounted for. We investigate the interplay between these factors in a laboratory experiment where participants play an extended version of the trust game, the trust-to-investment game. In this game, the investor may transfer money to the entrepreneur, who may then invest some, all or none of this money onto a conventional investment opportunity or an impact investment opportunity, and then decide whether or not to transfer some of the funds back. Entrepreneurs choose a type of investment and their choice is made visible to the investors. Thereby, entrepreneurs may signal to the investors whether they will invest in conventional or in impact investments and all signaling is binding. The experiment helps identify how the presence of impact investments can help investors coordinate onto different investment types. Specifically, it helps study the mechanisms behind the belief that investors might be more inclined to invest in social projects because they assume socially-oriented entrepreneurs will be more trustworthy.
@article{Boulu-Reshef2018,
abstract = {Entrepreneurs may differentiate their ventures and attract investments by advertising that their firm produces positive externalities for society. Such types of investment opportunities are casually referred to as “impact investment'' by practitioners. Thereby, an entrepreneur's decision on a social project as well as an investor's interest in it can be driven by various factors. This paper studies the effect of altruistic motives, fiscal motives, and reputational motives on investment behavior in contexts in which the effect of trust is accounted for. We investigate the interplay between these factors in a laboratory experiment where participants play an extended version of the trust game, the trust-to-investment game. In this game, the investor may transfer money to the entrepreneur, who may then invest some, all or none of this money onto a conventional investment opportunity or an impact investment opportunity, and then decide whether or not to transfer some of the funds back. Entrepreneurs choose a type of investment and their choice is made visible to the investors. Thereby, entrepreneurs may signal to the investors whether they will invest in conventional or in impact investments and all signaling is binding. The experiment helps identify how the presence of impact investments can help investors coordinate onto different investment types. Specifically, it helps study the mechanisms behind the belief that investors might be more inclined to invest in social projects because they assume socially-oriented entrepreneurs will be more trustworthy.},
author = {Boulu-Reshef, Béatrice and Kuechle, Graciela and Rohland, Luise},
file = {::},
institution = {SSRN},
journal = {Working Paper SSRN 3190425},
keywords = {DOLFINS{\_}T3.2},
mendeley-tags = {DOLFINS{\_}T3.2},
title = {{Signaling Trustworthiness in Investments: An Experimental Study}},
url = {https://papers.ssrn.com/sol3/papers.cfm?abstract{\_}id=3190425},
year = {2018}
}

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