Technology Adoption with Exit in Imperfectly Informed Equity Markets
AbstractThis paper focuses on the importance of equity markets in facilitating the exit of entrepreneurs investing in technology. Entrepreneurs' willingness to invest and aggregate output is affected in two opposite ways. First, uncertainty about equity price or lack of market liquidity discourages technology adoption. This can explain slow technology adoption and limited participation by venture capitalists in underdeveloped equity markets. Second, fast adoption is a positive signal to imperfectly informed equity market participants. This provides a rational explanation for overpricing technology stocks and overinvestment in developed markets. Fast adoption is most probable at an intermediate quality of information. (JEL D82, E23, G12, G31, G32, O33)
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 100 (2010)
Issue (Month): 3 (June)
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
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- Tinn, K & Vourvachaki, E, 2013. "Can overpricing of technology stocks be good for welfare? Positive spillovers vs. equity market losses," Working Papers 12192, Imperial College, London, Imperial College Business School.
- Katrin Tinn & Evangelia Vourvachaki, 2009. "Can Optimism about Technology Stocks Be Good for Welfare? Positive Spillovers vs. Equity Market Losses," CERGE-EI Working Papers wp383, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
- Bruno Coric, 2010. "Investments and capital market imperfections, identification issues: a survey," Financial Theory and Practice, Institute of Public Finance, vol. 34(4), pages 407-434.
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