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Ending the Mending Wall: Herding, Media Coverage, and Co-Location in IT Entrepreneurship

51 Pages Posted: 17 Oct 2016  

Brad N. Greenwood

University of Minnesota - Twin Cities - Carlson School of Management

Anandasivam Gopal

University of Maryland - Robert H. Smith School of Business

Date Written: October 15, 2016

Abstract

The advent of the Internet and the maturation of the Information Technology (IT) industry has significantly decreased transaction and coordination costs. However, there is still a strong preference for being geographically proximal, notably when accessing capital markets for innovation activities (like the formation of funding ties between venture capitalists (VCs) and new IT ventures). While VCs prefer to support co-located entrepreneurs, significant evidence suggests that the funding of non-local IT entrepreneurs does occur. In this work, we investigate how trends in the form of herding and media coverage, which are not specific to the entrepreneur but pertain to the technology sector the entrepreneur operates in, may influence VCs to reach across geographic boundaries. Using a series of matched sample methodologies, results suggest that the influence of media is significantly stronger for VCs considering funding non-co-located, as opposed to co-located, IT entrepreneurs. However, and strikingly, support for the effect of herding is notably weaker. Managerial and policy implications, particularly for technology entrepreneurs and policy-makers seeking to support such innovators, are discussed within.

Keywords: venture capital, entrepreneurship, herding, media coverage, coarsened exact matching, co-location, information technology

Suggested Citation

Greenwood, Brad N. and Gopal, Anandasivam, Ending the Mending Wall: Herding, Media Coverage, and Co-Location in IT Entrepreneurship (October 15, 2016). Available at SSRN: https://ssrn.com/abstract=2852919

Brad N. Greenwood (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Anandasivam Gopal

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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