Technology Adoption with Exit in Imperfectly Informed Equity Markets

Abstract

This paper focuses on the importance of equity markets in facilitating the exit of entrepreneurs investing in technology. Entrepreneurs' willingness to invest and aggregate output is affected in two opposite ways. First, uncertainty about equity price or lack of market liquidity discourages technology adoption. This can explain slow technology adoption and limited participation by venture capitalists in underdeveloped equity markets. Second, imperfectly informed market participants rationally take fast adoption as a positive signal. The resulting increase of expected market value encourages technology adoption. Fast technology adoption is most probable if the quality of information is at an intermediate level.

Keywords: Technology adoption, equity market, exit opportunities, transparency, imperfect information

JEL Classification: D82, E44, G10,O30