In this paper I run a laboratory experiment to simulate early stage investment market. I use the Trust Game (Berg et al., 1995) and add a third party, the Business Angel, who decides whether to invest and how much in a firm that is composed by an employer (i.e., principal) and an employee (i.e., agent). I am primarily interested in analysing how investment in a firm is explained by its perceived trustworthiness. Business Angels estimate firm’s trustworthiness from trust-based information that, in my experiment, is directly related to the behavior of firm’s members and behavior of all Business Angels in the market in general. To this aim, the experimental treatments define information conditions on firms’ trustworthiness for the Business Angel. In the Baseline treatment, Business Angels have no information. In the Reputation treatment, Business Angels observe prinicipal’s trust and agent’s reciprocity in the past, and in the Reputation and Imitation treatment, Business Angels also observe how firms have been invested on average in the past. The findings suggest that, on the one hand, the awareness of the firms’ trustworthiness is crucial for strengthening Business Angels’ con dence and, on the other hand, integration and revealing of trustworthy relationship within the firm increases its competitiveness and becomes attractive for potential Business Angels.
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