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http://ssrn.com/abstract=2060739
 
 

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State Governments as Financiers of Technology Startups: Implications for Firm Performance


Bo Zhao


University of Hong Kong - Faculty of Business and Economics

Rosemarie Ham Ziedonis


University of Oregon - Lundquist College of Business

July 2012


Abstract:     
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

working papers series


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Date posted: May 16, 2012 ; Last revised: August 19, 2014

Suggested Citation

Zhao, Bo and Ziedonis, Rosemarie Ham, State Governments as Financiers of Technology Startups: Implications for Firm Performance (July 2012). Available at SSRN: http://ssrn.com/abstract=2060739 or http://dx.doi.org/10.2139/ssrn.2060739

Contact Information

Bo Zhao (Contact Author)
University of Hong Kong - Faculty of Business and Economics ( email )
Pokfulam Road
Hong Kong
China
Rosemarie Ham Ziedonis
University of Oregon - Lundquist College of Business ( email )
Eugene, OR 97403-1208
United States
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