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Venture Capitalists, Asymmetric Information, and Ownership in the Innovation Process Author info | Abstract | Publisher info | Download info | Related research | Statistics Fabrizi, Simona (Massey University Auckland)
Lippert, Steffen (Massey University Auckland)
Norbäck, Peh () (Research Institute of Industrial Economics (IFN))
Persson, Lars () (Research Institute of Industrial Economics (IFN))
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registered author(s):
In this paper we construct a model in which entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We show that as exacerbated development by better-informed venture-backed rms is used as a signal to enhance the sale price of developed innovations, venture capitalists must be sufciently more ecient in selecting innovative projects than incumbents in order to exist in equilibrium. Otherwise, incumbents undertake early preemptive, acquisitions to prevent the venture-backed rms' signaling-driven investment, despite the risk of buying a bad innovation. We nally show at what point the presence of active venture capitalists increases the incentives for entrepreneurial innovations.
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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number
776.
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Length: 38 pages
Date of creation: 06 Nov 2008Date of revision:
Handle: RePEc:hhs:iuiwop:0776Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden Phone: +46 8 665 4500 Fax: +46 8 665 4599 Email: Web page: http://www.ifn.se/ More information through EDIRC
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Keywords: Venture Capitalists ; Innovation ; Entrepreneurs ; Signaling ; Development ; Other versions of this item:
Find related papers by JEL classification: C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
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