Financial Signaling by Innovative Nascent Entrepreneurs

David Audretsch (), Prashanth Mahagaonkar and Werner Bönte ()
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Prashanth Mahagaonkar: Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group

No sdp09001, Schumpeter Discussion Papers from Universitätsbibliothek Wuppertal, University Library

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: G14 G24 G32 L26 M13 O34 (search for similar items in EconPapers)
Pages: 45
Date: 2009-01
New Economics Papers: this item is included in nep-cta, nep-ipr and nep-pr~
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Financial Signalling by Innovative Nascent Entrepreneurs (2009)
Working Paper: Financial Signaling by Innovative Nascent Entrepreneurs (2009)
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