In our article, The Importance of Trust for Investment: Evidence from Venture Capital, forthcoming in the Review of Financial Studies, we ask whether trust among nations affects the decision to make an investment across different countries, how trust is related to investment success, and how trust affects deal structures. Following the social capital literature, we define trust as a subjective belief about the likelihood that a potential trading partner will act honestly. Distinguishing between two different types of trust is essential: Generalized trust pertains to the preconceptions that people of one identifiable group have for people from another identifiable group. Personalized trust, on the other hand, concerns an evolving relationship between two specific agents. In this article we focus solely on generalized trust, so that we are concerned with what might be considered cursory beliefs, generalizations about others, or even stereotypes. Moreover, generalized trust does not necessarily pertain to the specific company that an investor deals with, but it may pertain to the company’s countrymen and country’s institutions, which can influence the investment outcome.

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