Conveying Quality and Value in Emerging Industries: Star Scientists and the Role of Learning in Biotechnology / Matthew J. Higgins, Paula E. Stephan, Jerry G. Thursby.

Format:

Book

Author/Creator:

Higgins, Matthew J.

Contributor:

National Bureau of Economic Research.

Stephan, Paula E.

Thursby, Jerry G.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14602.

NBER working paper series no. w14602

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Conveying Quality and Value in Emerging Industries

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

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 investors. Here we explore the importance within the biotechnology industry of the non-financial metrics firms used to convey value during two important initial public offerings (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.

Notes:

Print version record

December 2008.