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Patents as Signals for Startup Financing

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  • Annamaria Conti
  • Jerry Thursby
  • Marie C. Thursby

Abstract

We examine the role of patents as signals used to reduce information asymmetries in entrepreneurial finance. A theoretical model gives conditions for a unique separating equilibrium in which startup founders file for patents to signal invention quality to investors, as well as appropriating value. The theory allows for heterogeneous investors and examine the optimal match of different types of startups, as defined by the quality of their technology, to investors who differ in the amount of non financial capital they provide. The empirical analysis is consistent with the model's predictions using a novel dataset of Israeli startups that received external funding during the period 1994-2011.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19191.

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Date of creation: Jun 2013
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Handle: RePEc:nbr:nberwo:19191

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Cited by:
  1. Hottenrott H. & Czarnitzki D. & Hall B.H., 2014. "Patents as quality signals? The implications for financing constraints on R&D," MERIT Working Papers, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) 013, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Stefano Comino & Clara Graziano, 2014. "How Many Patents Does it Take to Signal Innovation Quality?," CESifo Working Paper Series 4840, CESifo Group Munich.

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