To Be Financed or Not… - The Role of Patents for Venture Capital-Financing
47 Pages Posted: 23 Apr 2009 Last revised: 28 Mar 2013
Date Written: 2012
In the presence of asymmetric information, economic agents need to communicate their quality to investors and other parties. While much of the literature focuses exclusively on signaling, we develop a conceptual framework that extends this view with elements of the literature on certification. We derive and test empirically several hypotheses using a sample of British and German companies that seek venture capital (VC). We find that patent applications – as signals from ventures – are positively related to VC-financing. Moreover, applications trigger institutionalized processes at the patent office, which can generate valuable technological and commercial information via search reports, citations and opposition procedures and thus affect VC-financing. Our results highlight the role of signaling, but additional information about venture quality is generated via an institutionalized certification process.
Keywords: signaling, certification, liabilities of newness, venture capital, patent system, biotechnology
JEL Classification: G24, L20, L26, O30, O34
Suggested Citation: Suggested Citation