 Expertise and finance: Mergers motivated by technological changeEconomics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra Abstract: This paper argues that a large technological innovation may lead to a merger wave by inducing entrepreneurs to seek funds from technologically knowledgeable firms -experts. When a large technological innovation occurs, the ability of non-experts (banks) to discriminate between good and bad quality projects is reduced. Experts can continue to charge a low rate of interest for financing because their expertise enables them to identify good quality projects and to avoid unprofitable investments. On the other hand, non-experts now charge a higher rate of interest in order to screen bad projects. More entrepreneurs, therefore, disclose their projects to experts to raise funds from them. Such experts are, however, able to copy the projects and disclosure to them invites the possibility of competition. Thus the entrepreneur and the expert may merge so as to achieve product market collusion. As well as rationalizing mergers, the model can also explain various forms of venture financing by experts such as corporate investors and business angels. Keywords: Expertise; venture financing; merger; technological innovation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:253 Access Statistics for this paper More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.