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The effect of formal financial accessibility on love money investment

The effect of formal financial accessibility on love money investment This paper aims to analyse whether the degree of formal financial access in a country affects love money investment, defined as capital provided to entrepreneurs from family and friends to finance their businesses, in early-stage entrepreneurial activities.Design/methodology/approachThe authors use multilevel mixed-effect regression models and an extensive database of over 700 thousand individuals from 53 countries between 2007 and 2017 taken from the Global Entrepreneurship Monitor adult population survey.FindingsThis paper finds that a country’s level of accessibility to bank debt and venture capital is positively associated with the likelihood of an individual becoming a love money investor. It also finds that the amount of capital invested by love money investors is positively correlated to the level of access to bank debt and venture capital. The results of this paper confirm the hypothesis of complementarity between the financial system and friends and family financing in the capital market for early-stage entrepreneurs.Originality/valueThis paper contributes to the entrepreneurial finance literature, particularly to a better understanding of the love money investors, an important source of funding and segment of the informal investment that is sparsely studied. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png European Business Review Emerald Publishing

The effect of formal financial accessibility on love money investment

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References (42)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0955-534X
eISSN
0955-534X
DOI
10.1108/ebr-10-2022-0210
Publisher site
See Article on Publisher Site

Abstract

This paper aims to analyse whether the degree of formal financial access in a country affects love money investment, defined as capital provided to entrepreneurs from family and friends to finance their businesses, in early-stage entrepreneurial activities.Design/methodology/approachThe authors use multilevel mixed-effect regression models and an extensive database of over 700 thousand individuals from 53 countries between 2007 and 2017 taken from the Global Entrepreneurship Monitor adult population survey.FindingsThis paper finds that a country’s level of accessibility to bank debt and venture capital is positively associated with the likelihood of an individual becoming a love money investor. It also finds that the amount of capital invested by love money investors is positively correlated to the level of access to bank debt and venture capital. The results of this paper confirm the hypothesis of complementarity between the financial system and friends and family financing in the capital market for early-stage entrepreneurs.Originality/valueThis paper contributes to the entrepreneurial finance literature, particularly to a better understanding of the love money investors, an important source of funding and segment of the informal investment that is sparsely studied.

Journal

European Business ReviewEmerald Publishing

Published: Feb 13, 2023

Keywords: Love money investors; Informal investors; Entrepreneurship; Financial development; Financing constraints; Global entrepreneurship monitor

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