Chapter

Investor Altruism: Financial Returns from Informal Investments in Businesses Owned by Relatives, Friends, and Strangers

William D. Bygrave and Niels Bosma

in The Dynamics of Entrepreneurship

Published in print July 2011 | ISBN: 9780199580866
Published online September 2011 | e-ISBN: 9780191728716 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199580866.003.0005
Investor Altruism: Financial Returns from Informal Investments in Businesses Owned by Relatives, Friends, and Strangers

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Agency and altruism theory are combined to develop a framework explaining expected returns on informal investments in fifty-four countries that participated in GEM in either 2007 or 2008 or both. The chapter finds evidence that altruism affects expected returns. Also, the chapter finds that as the relationship between investor and entrepreneur becomes more distant, the influence of altruism decreases and agency concerns increase to the point where they dominate, as in the case of formal investments by professional venture capitalists. The chapter also finds evidence that gender and age influence expected returns on informal investments and that entrepreneurs expected higher returns from their own businesses than from their investments in the businesses of others.

Keywords: entrepreneurship; altruism; informal investors; angel investors; GEM; informal financing; business angels

Chapter.  8486 words.  Illustrated.

Subjects: Innovation

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