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Short-termism, long-termism, and regulatory focus in venture capitalists' investment decisions

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  • Dmitry Khanin
  • Ofir Turel

Abstract

Short-termism and long-termism are characterized in the literature as suboptimal intertemporal trade-offs defined, respectively, as prioritizing the short term over the long term (to the detriment of the long term) and prioritizing the long term over the short term (to the detriment of the short term). Advancing this perspective, we argue that short-termism and long-termism could be approached as opportunistic strategies utilized by agents to earn private benefits at the principal's expense. Venture Capitalists (VCs) may use either of these strategies to take advantage of limited partners and entrepreneurs. How can principals detect opportunistic tendencies on the part of VCs as agents? We argue that the principals can do so by examining the effect of the two suboptimal intertemporal trade-offs on VCs’ investment proclivities. Thus, we contend that short-termism amplifies VCs’ eagerness to invest whereas long-termism magnifies VC's eagerness to provide follow-on investment. Counterintuitively, short-termism may also augment long-termism but only under promotion and not prevention framing. Hierarchical linear modeling analysis of the data from a survey of 50 US-based VCs provided support for all the proposed hypotheses.

Suggested Citation

  • Dmitry Khanin & Ofir Turel, 2012. "Short-termism, long-termism, and regulatory focus in venture capitalists' investment decisions," Venture Capital, Taylor & Francis Journals, vol. 14(1), pages 61-76, January.
  • Handle: RePEc:taf:veecee:v:14:y:2012:i:1:p:61-76
    DOI: 10.1080/13691066.2012.666072
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    References listed on IDEAS

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    1. Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
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    Cited by:

    1. Dunne, Timothy C. & Clark, Brent B. & Berns, John P. & McDowell, William C., 2019. "The technology bias in entrepreneur-investor negotiations," Journal of Business Research, Elsevier, vol. 105(C), pages 258-269.
    2. Dmitry Khanin & Raj V. Mahto, 2013. "Do Venture Capitalists Have a Continuation Bias?," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 22(2), pages 203-222, September.

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