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Financial Signaling by Innovative Nascent Entrepreneurs

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Author Info
David B. Audretsch (Indiana University and Max Planck Institute of Economics)
Prashanth Mahagaonkar (Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group)
Werner Bönte () (Schumpeter School of Economics and Business, Bergische Universität Wuppertal and Max Planck Institute of Economics)

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Abstract

External finance is central for nascent entrepreneurs, people in the process of starting new ventures. We argue that nascent entrepreneurs use patents and prototypes in order to signal their ability to appropriate the returns from their innovation as well as the project's feasibility. Our analysis of 900 nascent entrepreneurs finds that patents and prototypes increase the likelihood of obtaining equity finance. Thus, if signals are credible, innovation positively impacts external financing. Interestingly, entrepreneurs in planning versus early start-up stage portray different signaling effects, indicating that the relation between finance and innovation depends on the stage of a start-up lifecycle.

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Publisher Info
Paper provided by Universitätsbibliothek Wuppertal, University Library in its series Schumpeter Discussion Papers with number sdp09001.

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Length: 45
Date of creation: Jan 2009
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Handle: RePEc:bwu:schdps:sdp09001

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Related research
Keywords: Innovation; Entrepreneurship; Finance; Information Asymmetries;

Other versions of this item:

Find related papers by JEL classification:
L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights

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    Other versions:
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