Financial Signaling by Innovative Nascent Entrepreneurs
AbstractExternal 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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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2009-012.
Date of creation: 01 Feb 2009
Date of revision:
Innovation; Entrepreneurship; Finance; Information Asymmetries;
Other versions of this item:
- David B. Audretsch & Prashanth Mahagaonkar & Werner Bönte, 2009. "Financial Signaling by Innovative Nascent Entrepreneurs," Schumpeter Discussion Papers, UniversitÃ¤tsbibliothek Wuppertal, University Library sdp09001, Universitätsbibliothek Wuppertal, University Library.
- Audretsch, David B & Bönte, Werner & Mahagaonkar, Prashanth, 2009. "Financial Signalling by Innovative Nascent Entrepreneurs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7165, C.E.P.R. Discussion Papers.
- 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; 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
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-14 (All new papers)
- NEP-CFN-2009-02-14 (Corporate Finance)
- NEP-CTA-2009-02-14 (Contract Theory & Applications)
- NEP-ENT-2009-02-14 (Entrepreneurship)
- NEP-INO-2009-02-14 (Innovation)
- NEP-IPR-2009-02-14 (Intellectual Property Rights)
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