Impact Investing and Venture Capital Industry: Experimental Evidence

100 Pages Posted: 10 Nov 2021 Last revised: 14 Jul 2022

See all articles by Ye Zhang

Ye Zhang

Stockholm School of Economics - Finance Department

Date Written: December 20, 2021

Abstract

Utilizing an experiment with real US venture capitalists, this paper finds that aiming for environmental and social impacts lowers investors’ expectations of a startup’s financial returns, especially when evaluating attractive startups. However, there exists a taste-driven preference towards impact investing, which is correlated with investors’ social preferences. Also, sorting based on ESG might occur between investors and startups. Interestingly, impact ventures are correlated with better ex-post fundraising and business performance, suggesting that investors might underinvest in impact ventures. A dynamic Bayesian model is used to demonstrate how these identified preferences may affect impact investment in the US venture capital industry.

Keywords: Venture Capital, Entrepreneurship, Sustainable Finance, Field Experiments, Greenwashing

JEL Classification: C93, D83, G11, G24, Q56

Suggested Citation

Zhang, Ye, Impact Investing and Venture Capital Industry: Experimental Evidence (December 20, 2021). Available at SSRN: https://ssrn.com/abstract=3959117 or http://dx.doi.org/10.2139/ssrn.3959117

Ye Zhang (Contact Author)

Stockholm School of Economics - Finance Department ( email )

Stockholm
Sweden

HOME PAGE: http://https://www.yezhang.space/

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