Conveying Quality and Value in Emerging Industries: Star Scientists and the Role of Learning in Biotechnology

27 Pages Posted: 14 Jun 2007 Last revised: 29 Oct 2015

Matthew John Higgins

Georgia Institute of Technology & NBER; National Bureau of Economic Research (NBER)

Paula E. Stephan

Georgia State University - Department of Economics; National Bureau of Economic Research (NBER)

Jerry G. Thursby

Emory University - Department of Economics; Georgia Institute of Technology - Scheller College of Business

Multiple version iconThere are 3 versions of this paper

Date Written: November 8, 2008

Abstract

Managers of private entrepreneurial firms face obstacles in raising capital both in placing a value on a firm and conveying value to investors. These problems are exacerbated when the firm is small, has limited assets (except for human capital) and has yet to have a lead product. In such cases metrics are necessary to convey the value of the firm to investor. Here we explore the importance within the biotechnology industry of the non-financial metrics firms used to convey value during two important initial public offering (IPO) windows (1989 to 1992 and 1996 to 2000). We also examine whether there was a change over time in the importance of various metrics in determining the value of a biotechnology firm. We find that firms with an affiliated Nobel laureate succeeded in raising the value of their firms by more than $30 million compared to firms without a Nobel laureate during the first period, suggesting that a Nobel laureate served as a powerful signal of firm value. Our results also suggest that the biotechnology regime changed and the Nobel Prize lost its luster as a signal of value in the second period. The importance of several other non-financial metrics changed as well. We conclude that these non-financial metrics of value change in relative importance to potential investors and financial markets as learning occurs and as an industry matures.

Keywords: Nobel laureate, biotechnology, signaling, initial public offering, regime change

JEL Classification: D80, G10, J33

Suggested Citation

Higgins, Matthew John and Stephan, Paula E. and Thursby, Jerry G., Conveying Quality and Value in Emerging Industries: Star Scientists and the Role of Learning in Biotechnology (November 8, 2008). Available at SSRN: https://ssrn.com/abstract=992868 or http://dx.doi.org/10.2139/ssrn.992868

Matthew John Higgins (Contact Author)

Georgia Institute of Technology & NBER ( email )

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Atlanta, GA 30308
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404-894-4368 (Phone)
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National Bureau of Economic Research (NBER) ( email )

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Paula E. Stephan

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
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National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Jerry G. Thursby

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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