Prashanth Mahagaonkar

Financial Signaling by Innovative Nascent Entrepreneurs

Innovative new ventures fail if they cannot attract resources needed to commercialise new ideas and inventions. Obtaining external resources is a central issue for nascent entrepreneurs - people who are in the process of starting new ventures. We argue in this paper that, a way to deal with this problem is to signal appropriability and feasibility of innovation to the financiers through patenting and prototyping activities, right in the early stages of the venture. We build a new dataset of over 900 nascent entrepreneurs with information on financing from conventional sources as well as business angels and venture capitalists. Our results suggest that patenting and prototyping increase the likelihood of obtaining external finance, especially equity. However, the most important determinant of debt is house ownership. This indicates that new start-ups need to protect their innovations and at the same time, should also prototype the intended product in order to obtain start-up finance. New ventures should therefore strategically use their innovativeness in order to obtain external finance.

What Do Scientists Want: Money or Fame?

Scientists carry out the tasks of education, research, and commercial activities (the so-called third task) at universities. Despite their importance, the roles, motivations, and perceptions of university inventors have been relatively neglected topics of study. Most studies on university-industry relations have hitherto focused on a few selected elite universities, technology transfer offices (TTOs), patent legislations, or technology transfer activities in specific sectors from the United States. In these studies, the focus of interest is primarily the importance of institutions (patent legislation, policymechanisms) and organizations (TTOs, university administration) in the patenting activities of scientists (see recent reviews by Siegel & Phan, 2005; Rothaermel et al., 2007; Goktepe, 2008). Some studies initiated the importance of individual oriented factors, but rather limited themselves only to entrepreneurial traits, experience, scientific background, and demographic factors such as age in order to analyze commercialization motives of scientists.

Corruption and Innovation

While one strand of research views corruption as a boost to economic growth (e.g., Leff, 1964), the other views it as a hindrance (e.g., Mauro, 1995). Most of the “hindrance” literature relies on the linkage of corruption to growth through its affect on investment.Meon and Sekkat (2005) find that corruption affects growth independently from its impact on investment in economies where there are weak governance structures. There is a need therefore in this context to study channels of economic growth that are affected by corruption. This paper deals with one such channel, namely innovative activity. This paper is the first in a way that it tries to merge two distinct fields of economics of innovation and public choice.

Regional Financial System and the Financial Structure of Small Firms

A large share of small business failures is attributed to financial structure mismanagement. Most of our knowledge on financial structure of small firms is from the streams of financial access and capital structure. The implications from capital structure stream are threefold: (1) small firms are more debt based, (2) small firms tend to bootstrap their finances, and (3) small firms are more credit rationed. Beyond that it is well known in capital structure1 research that owner, firm, and industry characteristics are important for these results. In the stream of financial access, research from the policy angle has been toward financial institution availability, rules and regulations, time for application, etc. The emphasis in this stream is mainly on banks and borrowers. The central message is that small borrowers have many problems in the access front mainly in developing economies. Until recently, these two research streams have been distinct from each other. Faulkender and Petersen (2006) unite these two in an effort to show that supply of capital is as important as demand for capital in determining capital structure choice of firms. It is still an open issue whether this result is applicable to small firms.