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Geographic distance between venture capitalists and target firms and the value of quality signals

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Kolympiris, Christos, Hoenen, Sebastian and Kalaitzandonakes, Nicholas (2018) Geographic distance between venture capitalists and target firms and the value of quality signals. Industrial and Corporate Change, 27 (1). pp. 189-220. doi:10.1093/icc/dtw057

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Official URL: http://dx.doi.org/10.1093/icc/dtw057

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Abstract

In this paper, we examine whether the value of quality signals (patent activity and founding team characteristics) transmitted by emerging biotechnology firms is influenced by the geographic distance between venture capitalists and biotechnology firms. In line with the notion that signals are more valuable to receivers in environments of elevated information asymmetries and under the premise that long-distance transactions present such an environment, we empirically reveal that patent activity and founding team entrepreneurial experience are more effective in increasing venture capital investments when the distance between investors and investees is elevated. Our results, therefore, corroborate the rationale that because tacit knowledge circulates mostly within local circles, it diminishes the value of signals for local transactions, as a priori knowledge about potential target firms is more easily assessed by investors. Our study contributes to the literature on the factors that drive the value of signals, on the literature that studies the function of patents and other forms of intellectual property as a means to boost firm performance, and on the literature on the geography of venture capital investments.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Warwick Business School > Entrepreneurship, Innovation & Management
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Biotechnology industries, Venture capital, Patents -- Economic aspects
Journal or Publication Title: Industrial and Corporate Change
Publisher: Oxford University Press
ISSN: 0960-6491
Official Date: 1 February 2018
Dates:
DateEvent
1 February 2018Published
17 February 2017Available
10 August 2016Accepted
Date of first compliant deposit: 15 August 2018
Volume: 27
Number: 1
Page Range: pp. 189-220
DOI: 10.1093/icc/dtw057
Status: Peer Reviewed
Publication Status: Published
Publisher Statement: This is a pre-copyedited, author-produced version of an article accepted for publication in Industrial and Corporate Change following peer review. The version of record is available online at: http://dx.doi.org/10.1093/icc/dtw057
Access rights to Published version: Restricted or Subscription Access
RIOXX Funder/Project Grant:
Project/Grant IDRIOXX Funder NameFunder ID
#20050176Ewing Marion Kauffman Foundationhttp://dx.doi.org/10.13039/100000868

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