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Conveying Quality and Value in Emerging Industries: Star Scientists and the Role of Learning in Biotechnology

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  • Matthew J. Higgins
  • Paula E. Stephan
  • Jerry G. Thursby

Abstract

Managers of private entrepreneurial firms face obstacles in raising capital both in placing a value on a firm and conveying value to investors. These problems are exacerbated when the firm is small, has limited assets (except for human capital) and has yet to have a lead product. In such cases metrics are necessary to convey the value of the firm to investors. Here we explore the importance within the biotechnology industry of the non-financial metrics firms used to convey value during two important initial public offerings (IPO) windows (1989 to 1992 and 1996 to 2000). We also examine whether there was a change over time in the importance of various metrics in determining the value of a biotechnology firm. We find that firms with an affiliated Nobel laureate succeeded in raising the value of their firms by more than $30 million compared to firms without a Nobel laureate during the first period, suggesting that a Nobel laureate served as a powerful signal of firm value. Our results also suggest that the biotechnology regime changed and the Nobel Prize lost its luster as a signal of value in the second period. The importance of several other non-financial metrics changed as well. We conclude that these non-financial metrics of value change in relative importance to potential investors and financial markets as learning occurs and as an industry matures.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14602.

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Date of creation: Dec 2008
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Publication status: published as Research Policy 2011 | 40 | 4 | 605-617 Conveying quality and value in emerging industries: Star scientists and the role of signals in biotechnology Matthew J. Higgins Paula E. Stephan Jerry G. Thursby
Handle: RePEc:nbr:nberwo:14602

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Cited by:
  1. Subramanian, Annapoornima M. & Lim, Kwanghui & Soh, Pek-Hooi, 2013. "When birds of a feather don’t flock together: Different scientists and the roles they play in biotech R&D alliances," Research Policy, Elsevier, Elsevier, vol. 42(3), pages 595-612.
  2. Luo, Xiaowei Rose & Koput, Kenneth W. & Powell, Walter W., 2009. "Intellectual capital or signal? The effects of scientists on alliance formation in knowledge-intensive industries," Research Policy, Elsevier, Elsevier, vol. 38(8), pages 1313-1325, October.
  3. Aschhoff, Birgit & Grimpe, Christoph, 2012. "Peer effects and academics' industry involvement: The moderating role of age on professional imprinting," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 12-011, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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