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The diminishing signaling value of patents between early rounds of venture capital financing
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Hoenen, Sebastian, Kolympiris, Christos, Schoenmakers, Wilfred and Kalaitzandonakes, Nicholas (2014) The diminishing signaling value of patents between early rounds of venture capital financing. Research Policy, 43 (6). pp. 956-989. doi:10.1016/j.respol.2014.01.006 ISSN 0048-7333.
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WRAP-diminishing-signaling-value-capital-financing-Kolympiris-2018.pdf - Accepted Version - Requires a PDF viewer. Available under License Creative Commons Attribution Non-commercial No Derivatives 4.0. Download (1931Kb) | Preview |
Official URL: http://dx.doi.org/10.1016/j.respol.2014.01.006
Abstract
A long stream of research has documented the positive effects that patents bring about to emerging firms in high technology industries. The general consensus is that patents contribute to firm growth because they confer monopolistic market rights, offer protection from competitors, increase the negotiating position of patent holders and other benefits. What has received relatively less attention in the literature is whether patents act as a signal that attracts investors such as venture capital firms. The handful of studies that have addressed that question has not analyzed whether the signaling function of patents decreases after the initial attraction of venture capital, as information asymmetries between investors and target firms reduce. In this study we hypothesize that patent activity has a signaling value that diminishes once information asymmetries between investors and funded firms lessen. To study our proposition we draw upon a longitudinal dataset of more than 580 U.S.-based biotechnology firms to empirically demonstrate that biotechnology firms that have submitted patent applications substantially increase the level of funding they receive for their first round of financing. In line with a reduction of information asymmetries once the initial investment has materialized, patent applications and granted patents have no effect on the growth of venture capital funds raised during the second round of financing. We conclude the study with a discussion of avenues for new research, implications for policy makers that consider the usefulness of the current patent system and with insights that can be employed by managers of firms in knowledge intensive areas such as biotechnology.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance T Technology > T Technology (General) |
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Divisions: | Faculty of Social Sciences > Warwick Business School > Entrepreneurship, Innovation & Management Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Patents -- Economic aspects -- United States, Venture capital -- United States, Biotechnology industries -- United States | ||||||||
Journal or Publication Title: | Research Policy | ||||||||
Publisher: | Elsevier BV | ||||||||
ISSN: | 0048-7333 | ||||||||
Official Date: | July 2014 | ||||||||
Dates: |
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Volume: | 43 | ||||||||
Number: | 6 | ||||||||
Page Range: | pp. 956-989 | ||||||||
DOI: | 10.1016/j.respol.2014.01.006 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 15 August 2018 | ||||||||
Date of first compliant Open Access: | 15 August 2018 | ||||||||
RIOXX Funder/Project Grant: |
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