Financial Signaling by Innovative Nascent Entrepreneurs

David B. Audretsch, Werner Bönte () and Prashanth Mahagaonkar ()
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David B. Audretsch: Indiana University and Max Planck Institute of Economics, Jena, Germany

No 2009-012, Jena Economic Research Papers in Economics from Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek

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.

Keywords: Innovation; Entrepreneurship; Finance; Information Asymmetries (search for similar items in EconPapers)
JEL-codes: L26 M13 G14 G24 G32 O34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-cta, nep-ent, nep-ino and nep-ipr
Date: 2009-02-01

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Related works:
Working Paper: Financial Signaling by Innovative Nascent Entrepreneurs (2009)
Working Paper: Financial Signalling by Innovative Nascent Entrepreneurs (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:jrp:jrpwrp:2009-012

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