We extend theories of the firm to the entrepreneurial finance setting and argue that R&D-focused start-up firms will have a greater likelihood of financing themselves with equity rather than debt. We argue that mechanisms which reduce information asymmetry, including owner work experience and financier reputation, will increase the probability of funding with more debt. We also argue that start-ups that correctly align their financing mix to their R&D focus will perform better than firms that are misaligned. We study these ideas using a large nationally representative dataset on start-up firms in the United States.
Juan Carlos Suarez Serrato provided excellent research assistance. We thank Belen Villalonga and two referees for comments and suggestions that greatly improved the chapter. We also thank Rajshree Agarwal, Janet Bercovitz, Gavin Cassar, Waverly Ding, Jon Eckhardt, Ha Hoang, Georgia Kosmopoulou, Jenny Kuan, Sharon Matusik, Joanne Oxley, Kaye Schoonhoven, Jennifer Walske, Oliver Williamson, Arvids Ziedonis, Rosemarie Ziedonis, and seminar participants at numerous conferences for their valuable comments. All errors are the authors’ responsibility. Certain data included herein are derived from the Kauffman Firm Survey release 4.0. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the Ewing Marion Kauffman Foundation.
Robb, A. and Seamans, R. (2014), "The Role of R&D in Entrepreneurial Finance and Performance", Finance and Strategy (Advances in Strategic Management, Vol. 31), Emerald Group Publishing Limited, Leeds, pp. 341-373. https://doi.org/10.1108/S0742-332220140000031010
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