סמינר במימון

Rich Mathews, University of Maryland

Having a reputation for a desirable attribute (such as skill) generally makes a party more attractive as a partner.

However, it can also cause problems in a multi-stage relationship because  it increases the future demand for

a reputable party's services by others. This endogenous increase in their outside option makes it costly for them to

continue existing relationships, creating a conflict between maximizing project value and maximizing reputational rents.

This not only decreases the effort put into existing partnerships, but also makes partnering with non-reputed parties more attractive.

The effect is heightened if non-reputed parties can use the relationship to gain reputation, and are willing to share their expected

reputational rents. As a result, there is a feedback loop wherein reputation leads to a loss of potentially profitable relationships,

which increases the opportunities for others to become reputable, thereby increasing future competition. This significantly reduces

the value of gaining a reputation in the first place. We focus our analysis on relationships between entrepreneurs and venture capitalists,

and provide new testable implications.