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How patenting informs VC investors – The case of biotechnology

Author

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  • Haeussler, Carolin
  • Harhoff, Dietmar
  • Mueller, Elisabeth

Abstract

In the presence of asymmetric information, economic agents need to communicate their quality to investors and other parties. This paper investigates how information generated during the patenting process affects the ability of new ventures to attract VC financing. While much of the literature on information asymmetries focuses on patent applications, we argue that the entire examination process should be considered, including information that emerges in the course of patent examination and review. We test several hypotheses using a sample of British and German companies that seek venture capital. We find that the filing of patent applications is positively related to VC financing. Moreover, the examination process at the patent office generates valuable technological and commercial information via search reports, citations and opposition procedures which affect the likelihood of VC financing. Our results suggest that the patenting process supports investors in updating their expectations regarding the quality of new ventures.

Suggested Citation

  • Haeussler, Carolin & Harhoff, Dietmar & Mueller, Elisabeth, 2014. "How patenting informs VC investors – The case of biotechnology," Research Policy, Elsevier, vol. 43(8), pages 1286-1298.
    • Handle: RePEc:eee:respol:v:43:y:2014:i:8:p:1286-1298
    DOI: 10.1016/j.respol.2014.03.012
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    More about this item

    Keywords

    Signaling; Patent system; Liabilities of newness; Venture capital; Biotechnology;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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