Entrepreneurial Signaling: Success Factors for Innovative Start-Ups
AbstractInnovative start-ups and their respective market partners are faced with severe problems of asymmetric information due to their lack of prior production history and reputation. We study whether entrepreneurial signaling can help solve these problems and thereby increase the potential success of innovative start-ups. We concentrate our analysis on the credit and labor market because they are crucial for the success of innovative start-ups and focus on the role of educational signals. We argue that entrepreneurs signal their quality to potential employees and creditors with certain characteristics of their educational history. According to our theoretical considerations we expect potential employees to use an entrepreneur's university degree as a quality signal when deciding whether to accept a job at an innovative start-up. And we expect banks to use a more precise indicator, namely the actual length of study in relation to a standard length, as a signal when deciding upon credits for an innovative founder. However, since asymmetric information problems and skill requirements are different for traditional start-ups we do not expect employees or banks to use the same signals for traditional start-ups. We empirically test our implications based on a dataset of more than 700 German start-ups collected in 1998/99. All implications are borne out in the data. So contrary to conventional wisdom, educational degrees and studying fast (not just studying) are even more important success factors for innovative than for traditional start-ups.
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Bibliographic InfoPaper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0055.
Length: 39 pages
Date of creation: Mar 2003
Date of revision: Mar 2004
Find related papers by JEL classification:
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
- M5 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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