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Financial Signalling by Innovative Nascent Entrepreneurs

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  • Audretsch, David
  • Bönte, Werner
  • Mahagaonkar, Prashanth

Abstract

Innovative new ventures fail if they cannot attract resources needed to commercialise new ideas and inventions. Obtaining external resources is a central issue for nascent entrepreneurs - people who are in the process of starting new ventures. We argue in this paper that, a way to deal with this problem is to signal appropriability and feasibility of innovation to the financiers through patenting and prototyping activities, right in the early stages of the venture. We build a new dataset of over 900 nascent entrepreneurs with information on financing from conventional sources as well as business angels and venture capitalists. Our results suggest that patenting and prototyping increase the likelihood of obtaining external finance, especially equity. However, the most important determinant of debt is house ownership. This indicates that new start-ups need to protect their innovations and at the same time, should also prototype the intended product in order to obtain start-up finance. New ventures should therefore strategically use their innovativeness in order to obtain external finance.

Suggested Citation

  • Audretsch, David & Bönte, Werner & Mahagaonkar, Prashanth, 2009. "Financial Signalling by Innovative Nascent Entrepreneurs," CEPR Discussion Papers 7165, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7165
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    Cited by:

    1. William Gartner & Casey Frid & John Alexander, 2012. "Financing the emerging firm," Small Business Economics, Springer, vol. 39(3), pages 745-761, October.
    2. Silva Filipe & Carreira Carlos, 2017. "Financial Constraints: Do They Matter to Allocate R&D Subsidies?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-26, October.
    3. TESTA, Giuseppina, 2015. "The Effect of the Euro Competition Over Innovation Decisions and Labor Productivity," CELPE Discussion Papers 135, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    4. Rajeev Goel & Devrim Göktepe-Hultén, 2013. "Nascent entrepreneurship and inventive activity: a somewhat new perspective," The Journal of Technology Transfer, Springer, vol. 38(4), pages 471-485, August.
    5. Llussá, Fernanda, 2009. "Financial Development, Gender and Entrepreneurship," MPRA Paper 26228, University Library of Munich, Germany.
    6. Padilla, Ramón & Fenton Ontañon, Rodrigo, 2013. "Commercial bank financing for micro-enterprises and SMEs in Mexico," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    7. Andrea Bellucci & Ilario Favaretto & Germana Giombini, 2014. "Does Innovation Affect Credit Access? New Empirical Evidence from Italian Small Business Lending," IAW Discussion Papers 104, Institut für Angewandte Wirtschaftsforschung (IAW).

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    More about this item

    Keywords

    Innovation; entrepreneurship; Finance; Information asymmetries;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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