Conveying Quality and Value in Emerging Industries: Star Scientists and the Role of Learning in Biotechnology

28 Pages Posted: 29 Dec 2008 Last revised: 26 Nov 2022

See all articles by Matthew John Higgins

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy; National Bureau of Economic Research (NBER); Max Planck Institute for Innovation and Competition

Paula E. Stephan

Georgia State University - Department of Economics; National Bureau of Economic Research (NBER)

Jerry G. Thursby

Emory University - Department of Economics; Georgia Institute of Technology - Scheller College of Business

Multiple version iconThere are 3 versions of this paper

Date Written: December 2008

Abstract

Managers of private entrepreneurial firms face obstacles in raising capital both in placing a value on a firm and conveying value to investors. These problems are exacerbated when the firm is small, has limited assets (except for human capital) and has yet to have a lead product. In such cases metrics are necessary to convey the value of the firm to investors. Here we explore the importance within the biotechnology industry of the non-financial metrics firms used to convey value during two important initial public offerings (IPO) windows (1989 to 1992 and 1996 to 2000). We also examine whether there was a change over time in the importance of various metrics in determining the value of a biotechnology firm. We find that firms with an affiliated Nobel laureate succeeded in raising the value of their firms by more than $30 million compared to firms without a Nobel laureate during the first period, suggesting that a Nobel laureate served as a powerful signal of firm value. Our results also suggest that the biotechnology regime changed and the Nobel Prize lost its luster as a signal of value in the second period. The importance of several other non-financial metrics changed as well. We conclude that these non-financial metrics of value change in relative importance to potential investors and financial markets as learning occurs and as an industry matures.

Suggested Citation

Higgins, Matthew John and Stephan, Paula E. and Thursby, Jerry G., Conveying Quality and Value in Emerging Industries: Star Scientists and the Role of Learning in Biotechnology (December 2008). NBER Working Paper No. w14602, Available at SSRN: https://ssrn.com/abstract=1320848

Matthew John Higgins (Contact Author)

University of Utah - Department of Entrepreneurship & Strategy ( email )

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National Bureau of Economic Research (NBER) ( email )

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Max Planck Institute for Innovation and Competition ( email )

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Paula E. Stephan

Georgia State University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Jerry G. Thursby

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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