State Governments as Financiers of Technology Startups: Implications for Firm Performance
University of Hong Kong - Faculty of Business and Economics
Rosemarie Ham Ziedonis
Boston University Questrom School of Business
U.S. state governments are active financiers of new science and technology companies. Yet little is known about the effects of state R&D funding on the performance of recipient ventures. This study provides new evidence based on competitive R&D awards administered by the state of Michigan from 2002 through 2008. We find strong and compelling evidence that state R&D awards enhanced the commercial viability (i.e., survival) of recipient firms, suggesting a relaxation of financial constraints. Among firms with scores near the discontinuous funding threshold, our estimates suggest that awardees were 15% to 25% more likely to survive three years after the competition than otherwise comparable applicants that sought but failed to receive an award. We also find that receipt of state R&D funding enhanced the follow-on financing for these new ventures, but only for those with more onerous information challenges in entrepreneurial capital markets.
Number of Pages in PDF File: 42
Keywords: innovation, government R&D programs, entrepreneurial finance, regression discontinuity design
JEL Classification: G28, M13, O32
Date posted: May 16, 2012 ; Last revised: August 19, 2014
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