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Financial Signaling by Innovative Nascent Entrepreneurs

Author

Listed:
  • David B. Audretsch

    (Indiana University and Max Planck Institute of Economics)

  • Prashanth Mahagaonkar

    (Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group)

  • Werner Bönte

    () (Schumpeter School of Economics and Business, Bergische Universität Wuppertal and Max Planck Institute of Economics)

Abstract

External 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.

Suggested Citation

  • David B. Audretsch & Prashanth Mahagaonkar & Werner Bönte, 2009. "Financial Signaling by Innovative Nascent Entrepreneurs," Schumpeter Discussion Papers sdp09001, Universitätsbibliothek Wuppertal, University Library.
  • Handle: RePEc:bwu:schdps:sdp09001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. TESTA, Giuseppina, 2015. "The Effect of the Euro Competition Over Innovation Decisions and Labor Productivity," CELPE Discussion Papers 135, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    2. Andrea Bellucci & Ilario Favaretto & Germana Giombini, 2014. "Does Innovation Affect Credit Access? New Empirical Evidence from Italian Small Business Lending," IAW Discussion Papers 104, Institut für Angewandte Wirtschaftsforschung (IAW).
    3. repec:bpj:bejeap:v:17:y:2017:i:4:p:26:n:1 is not listed on IDEAS
    4. Padilla, Ramón & Fenton Ontañon, Rodrigo, 2013. "Commercial bank financing for micro-enterprises and SMEs in Mexico," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    5. Silva Filipe & Carreira Carlos, 2017. "Financial Constraints: Do They Matter to Allocate R&D Subsidies?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-26, October.
    6. William Gartner & Casey Frid & John Alexander, 2012. "Financing the emerging firm," Small Business Economics, Springer, vol. 39(3), pages 745-761, October.
    7. Rajeev Goel & Devrim Göktepe-Hultén, 2013. "Nascent entrepreneurship and inventive activity: a somewhat new perspective," The Journal of Technology Transfer, Springer, vol. 38(4), pages 471-485, August.
    8. Llussá, Fernanda, 2009. "Financial Development, Gender and Entrepreneurship," MPRA Paper 26228, University Library of Munich, Germany.

    More about this item

    Keywords

    Innovation; Entrepreneurship; Finance; Information Asymmetries;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - 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, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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