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Entrepreneurial Signaling: Success Factors for Innovative Start-Ups

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  • Uschi Backes-Gellner

    ()
    (Institute for Strategy and Business Economics, University of Zurich)

  • Arndt Werner

    ()
    (Institut für Mittelstandsforschung Bonn (IfM Bonn), (Institute for Small and Medium Size Enterprises, Bonn))

Abstract

Innovative 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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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/55_ISU_full.pdf
File Function: Revised version, 2004
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Bibliographic Info

Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0055.

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Length: 39 pages
Date of creation: Mar 2003
Date of revision: Mar 2004
Handle: RePEc:iso:wpaper:0055

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  1. Keuschnigg, Christian & Nielsen, Soren Bo, 2000. "Tax Policy, Venture Capital and Entrepreneurship," CEPR Discussion Papers 2626, C.E.P.R. Discussion Papers.
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Cited by:
  1. Uschi Backes-Gellner, 2004. "Personnel Economics: An Economic Approach to Human Resource Management," management revue. Socio-economic Studies, Rainer Hampp Verlag, vol. 15(2), pages 215-227.
  2. John Armour & Douglas Cumming, 2005. "Bankruptcy Law and Entrepreneurship," ESRC Centre for Business Research - Working Papers wp300, ESRC Centre for Business Research.

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