In the entrepreneurship feld, this study examines what kinds of external endorsements are helpful for venture capitals investment and the growth of new technology ventures in developing countries. This study uses the signalling theory and the methodologies of multple regression and survival analysis with the panel data of the ventures in Korea. In the results, collaboraton with business groups and certfcaton of government are positvely inﬂuental in atractng venture capitals’ investment, which accelerate the growth of new technology ventures. The practcal implicaton for entrepreneurs is that they need to obtain the endorsement from business groups and governments strategically.
Keywords: new technology venture creation, small business, signalling theory, business group, venture capital, Initial Public Offering.
Developing countries need to strengthen their research capabilites in order to catch up with advanced countries. For this, a country’s actvites to develop, adapt and harness its innovatve capacity are critcal for its economic performance in the long run (Ernst, 2005; Ernst and Naughton, 2008). As new technology-based ventures (NTVs) introduce disruptve technologies and perform the role of Schumpeterian entrepreneurship, or “creatve destructon,” in the economy, they are an especially important source of new jobs and provide a crucial stmulus to natonal economies (Audretsch, 1995; Timmons and Bygrave, 1986). So the factors that drive their performances have increasingly atracted the atenton of entrepreneurship scholars as well as policy makers in developing countries.
NTVs need a greater amount and variety of resources for research and development (R&D) and marketng to diﬀerentate and commercialize new technologies compared to traditonal businesses. So, it is very important for NTVs to obtain the requisite resources from external resource holders. However, NTVs involve not only uncertainty that general ventures possess but also additonal uncertainty, for new technology is by its very nature highly uncertain (Tushman and Rosenkopf, 1992). For these reasons, NTVs are extremely risky. Such uncertainty makes resource holders hesitant to provide resources to NTVs, so they have difculty in obtaining the requisite resources in the markets (Colombo and Grilli, 2007; Peneder, 2008).
A lot of researches have argued that venture capitals are typical resource providers for NTVs and examined what their viewpoints of investment decision-making (Gompers and Lerner, 1997; 2001) are. In developed countries, relatvely efcient markets for capital and labour, easy access to complementary business services, and consistent enforcement of property right, as well as relatvely corrupton-free government and independent judiciary, all permit VCs to provide their resources by the rules of the game. In developing countries, by contrast, many of these insttutons exist in a relatvely weak form. Therefore, under these diﬀerent situatons, the investment patern of VCs in developing countries may diﬀer from one of VCs in developed countries such as USA. However, litle research has paid its atenton to this agenda of how VCs in developing countries invest in NTVs. Based on this gap in the academic literature, the following research queston is posed:
RQ: What factors are atractng VCs whose investments accelerate the growth of NTVs?
The present study employs insight from signalling theory (Podolny, 1993; 2008; Spence and Michael, 1974; Spence, 1973). To deepen the research queston, this study examines two sub research questons. First, what are the identtes of endorsing organizaton signalling to VCs’ investment in developing countries? Second, do VCs play a pivotal role for the growth of NTVs in developing countries? This study then tests these hypotheses using the NTVs in Korea which is a typical example of a developing country. The empirical fndings from this study confrm these hypotheses and have important implicatons for both academicians and practtoners.
External endorsement of NTVs and VC investment in developing country
In developed countries, market-based transactons provide access to most needed elements of resources such as fnances, human resources, technology etc. Relatvely efcient markets for capital and labor, easy access to complementary business services and consistent enforcement of property rights as well as relatvely corrupton-free government permit individual entrepreneurs to raise capital, hire human resources, learn about customer demands, and play by the rules of the game. In developing countries, by contrast, where many of these insttutons exist in a relatvely weak form, NTVs need to act strategically to gain legitmacy to be endorsed by respectable organizatons.
NTVs involve considerable uncertainty. Entrepreneurs try to reduce this uncertainty by gaining legitmacy from well-regarded individuals and organizatons. Zimmerman and Zeitz (2002) argued that legitmacy, which connotes a social judgment of acceptance, appropriateness, and desirability, is a resource by itself that enables startups to access other resources needed for survival and growth and helps startups overcome the liability of newness. Although startups can gain legitmacy by conforming passively to the demands and expectatons of the existng social structure (DiMaggio and Powell, 1983; Suchman, 1995), they can also do so by actng strategically (Zimmerman and Zeitz, 2002). For instance, startups can choose more favorable environments (Porter, 1980), manipulate their environment by teaming with other successful organizatons (Oliver 1991), and create environments with new norms, values, and models (Aldrich and Fiol, 1994). Several studies have found great variance in startups’ ability to gain access to resources and stable relatonships, which in turn leads to diﬀerences in these startups’ early performances (Baum, 1996; Fichman and Levinthal, 1991).
Therefore, in developing countries, external endorsement is a critcal factor for success in NTVs and can be a positve signal to VCs. Two key respectable organizatons, business group (BG) and government, can play a pivotal role to endorse NTVs which would be a positve signal to VCs.
First, strategic alliances with BGs would provide endorsement for NTVs. BGs control a substantal fracton of a country’s productve assets and account for the largest and most visible of the country’s frms. So they can contribute to innovaton through intangible assets such as business reputaton and government te by substtutng for functons that standalone insttutons provide in developed countries (Teece, 1996). BGs are respectable organizatons that can provide various resources including human resources, technology, or markets as well as fnance. Therefore, in developing countries, NTVs can obtain their requisite resources by collaboratng with BGs (Ratajczak-Mrozek, 2012). And, by establishing a strategic alliance with a highly reputable partner, venture companies can receive the beneft of the reputaton and induce resources from the possessors. Stuart et al. (1999) and Stuart (2000) argue that the reputaton of strategically allied partners provide the endorsement. Stuart et al. (1999) argue that as the uncertainty of ventures increases, the endorsement eﬀect which strategic alliances provide increases. Furthermore, Chang (2004) shows that in the internet industry, the reputaton of the alliance partner of the ventures provides the role of endorsement. Especially, Podolny and Stuart (1995) argue that if BGs adopt some new technology, it can be widely used by achieving social recogniton. BGs ofen control a substantal fracton of a country’s productve assets and account for the largest and most visible of the country’s frms (Granoveter, 1995; Khanna and Palepu, 1997). In partcular, unlike in developed countries, because BGs fll the gap lef by market failure, they can provide resources for the innovaton of ventures and thus inﬂuence the survival and growth of ventures. Therefore, due to high uncertainty of NTVs, VCs have difcultes in evaluatng the value of NTVs directly and thus are reluctant to provide their resources. Given this situaton, collaboratons with BGs play the role of endorsement to make VCs positvely evaluate the potental of NTVs. This endorsement induces VCs to provide their resources to NTVs and consequently perform well.
Secondly, a variety of support forms from governments would provide endorsement for NTVs. Governments of developing countries trying to catch up with technological advancement have a legitmate incentve to seriously consider socioeconomic externalites of sponsoring NTVs. Thus they ofen intervene in the market for corporate creaton and development. Studies in fnancial economics argue that due to capital market imperfectons, it is difcult for NTVs to obtain the external fnancing they need; in turn lack of adequate funds hinders frms’ growth and even threatens their survival (Carpenter and Petersen, 2002a and Carpenter and Petersen, 2002b). Under the situaton of capital market imperfectons, the government provides R&D fund directly to early-staged NTVs, in which VCs are reluctant to invest, to maximize socioeconomic externalites of them (Griliches, 1998; Lach, 2000). For example, Tan and Tay (1994) investgated the factors that inﬂuence the growth of small frms and suggested that fnancial support from the government was major a factor. Therefore, in developing countries, NTVs can obtain their requisite resources through supports of governments. And by obtaining supports from governments, venture companies can receive the beneft of the reputaton and induce resources from the possessors. Lerner (1999) suggests the government support plays the role of endorsement. He found that the frms that receive SBIR obtain more investment of VCs than other frms. An even more interestng thing is that the amount of support is not important but the support itself provides the positve signal of endorsement. Unfortunately, there is no other research apart from Lerner (1999)’s study that suggests the role of endorsement of the government’s support. In partcular, unlike in developed countries, because governments fll the gap lef by capital market imperfectons, they can provide resources for the innovaton of ventures and thus inﬂuence the survival and growth of ventures. Therefore, due to high uncertainty of NTVs, VCs have difcultes in evaluatng the value of NTVs directly and thus are reluctant to provide their resources. Given this situaton, supports from governments play the role of endorsement to make VCs positvely evaluate the potental of NTVs. This endorsement induces VCs to provide their resources to NTVs and consequently perform well.
H 1: When NTVs are endorsed by respectable organizatons, venture capitals in developing countries are more likely to invest in them.
H 1-1: When NTVs collaborate with business groups, venture capitals in developing countries are more likely to invest in them.
H 1-2: When NTVs obtain supports from governments, venture capitals in developing countries are more likely to invest in them.
The mediatng role of venture capitals’ investment of NTVs’ growth
As resource providers, VCs are helpful for ventures. Gompers and Lerner (1997; 2001) argue that VCs provide fnancial resources needed for ventures and their portolios can grow faster, for they can get additonal investment from VCs and they are not in fnancial trouble. And, Davila et al. (2003) argues that ventures that receive more funding are able to hire, retain, and pay talented employees, who are critcal to ventures’ growth and help them go to an IPO more quickly. Baum and Silverman (2004) suggest that VCs are not only investors but also allegedly perform an important “coach” functon. They provide their portolios with constant services in felds such as: strategic planning, marketng, fnance, accountng and human resource management, where these frms typically lack internal capabilites.
Simultaneously, other resource holders can view VCs’ investment as a strong signal of ventures’ quality and future prospects (Spence and Michael, 1974; Freeman, 1999; Podolny, 2001; Stuart, et al. 1999). VCs are evaluated on their ability to generate high returns for their investors. Since they take a fracton of the proceeds, they are motvated to generate high performance. Moreover, VCs that have a history of delivering extraordinary returns fnd it easier to raise funds from investors. Thus, VCs are unlikely to invest in ventures that have poor future prospects. In additon, since VCs ofen help ventures by performing “coach” functon, they increase the chance that ventures become successful. Thus, endorsement by respectable VCs not only signals the quality of a venture but also serves as a vote of confdence in the venture. By doing so, the endorsing organizatons’ legitmacy carries over to the recipient, providing it credibility, contact, and support for the entrepreneurs, building a venture’s image, which in turn, other resource holders will provide their resources actvely (Spence, 1974; Freeman, 1999; Podolny, 2001). Megginson and Weiss (1991) maintain that VC-backed ventures go public faster than the non-VC-backed one. Chang (2004) argues that the higher the reputaton of ventures, the more money internet ventures raise from VCs, the faster they have an IPO.
As I review the relevant literatures, the endorsement of respectable organizatons would inﬂuence the growth of NTVs (Khandwalla ,1976; Uterback and O’Neill, 1994; Kirzner, 1997; McMullen and Shepherd, 2006; Weick, 1996; Stuart, et al. 1999; Stuart, 2000; Chang, 2004; Podolny and Stuart, 1995; Tan and Tay, 1994; Lerner, 1999). This study suggests that they lure investment of VCs in developing countries. And relevant studies maintain that VCs provide their tangible and intangible resources to NTVs and induce passive resource holders to provide their resources, and so in turn NTVs can acquire the necessary resources they need to perform well. Therefore, this study raises the possibility of a mediatng role of VCs between the endorsement of respectable organizatons and the growth of the NTV.
H 2: NTVs endorsed by respectable organizatons can grow faster when they receive venture capitals investments.
H 2-1: NTVs collaboratng with business groups can grow faster when they receive venture capitals investments.
H 2-2: NTVs obtaining supports from governments can grow faster when they receive venture capitals investments.
I collected the data in the following procedure. First, data is collected from DART (Data Analysis, Retrieval and Transfer System), which is an electronic disclosure system that allows companies to submit disclosures online (www.dart.fss.or.kr). Second, the original target research sample consists of 1,253 KOSDAQ (Korea Securites Dealers Automated Quotaton) stock market listed frms from July 1, 1996 to December 31, 2005. Finally, I supplemented the database with diverse approaches such as newspaper artcles, publicatons, corporate homepages and phone calls to the frms.
And, to defne our fnal sample for analysis, I had to consider the following things. First, I limited samples to IT frms founded afer 1990, because business ventures in Korea have developed as the IT industry has expanded quickly during 1990s (Chung and Choi, 2008). Second, I also limited samples to the frms which went public afer July 1, 2000 to eliminate the unusual bias caused by these dramatc changes in market conditons. The Korean government had consistently loosened the listng requirements for the KOSD AQ market to encourage the provision of listed frms from July 1996 when the KOSDAQ stock market opened. But, by the early 2000s, the KOSDAQ market had collapsed. With rapid market readjustment, IT frms faced a dramatc drop in stock prices. Internet companies were hit hardest elsewhere. Moreover, market factors were aggravated due to insufcient restructuring, misdeeds of venture managers and unfair trading in the KOSDAQ market. With the overall venture industry experiencing a dramatc shakeout, the government raised the registraton standards for the KOSDAQ market (Lee 2002). The KOSDAQ market was under-valued from July 1, 1996 to late 1998 due to the so called “IMF fnancial crisis” and the burstng of the dot-com stock market bubble from early 1999 to the frst half of 2000. Finally, I eliminated frms of which the CEO is not a founder or a major shareholder. This study came up with the fnal sample of 170 KOSDAQ-listed frms for analysis.
Logistc regression was employed to test Hypotheses 1 and 2. I added the VC’s investment as a dependent variable. I conducted logistc regression because the dependent variable is measured not on a quanttatve scale, but on a qualitatve scale. The binary variable of VC’s investment follows binominal distributon, not normal distributon.
And fnally, survival analysis was employed to test Hypotheses 3 and 4. I use the tme to IPO as a dependent variable. a longitudinal statstcal analysis method may be used both in the analysis of qualitatve and quanttatve data (Tuma and Hannan 1984). The dependent variable of this analysis method is the tme to the occurrence of an event or the rate of an event occurring that a researcher is interested in. This study adopts the Cox Regression Model, which is a widely used statstcal model to investgate the complex relatonship between survival tme and other factors.
Collaboraton with a BG
Korean commercial law defnes about 900 frms with assets of over 2 trillion Won as a business group. More generally, they regard the 30 largest frms ranked by assets as so called ‘Chaebols’, announced by the Fair Trade Commission from 1995 to 2005. Collaboraton with a BG includes supply agreements, joint R&D, share partcipaton, and joint ventures. I defne large companies as the 30 largest frms ranked by assets. This research defnes a BG as an enterprise among the 30 largest frms as declared by the Fair Trade Commission. This study uses a binary variable to measure a strategic alliance with a BG that takes on the value of 1 if allied with BGs (strategic alliance with BG = 1) and 0 otherwise (no strategic alliance with BG = 0).
In the research context, Korean government provided some support program of venture company certfcaton. Under the venture company certfcaton program enacted in 1998, the Small and Medium Business Administraton designates qualifed venture companies as ‘ofcial venture company’ based on the stpulated regulatons. This certfcaton system is based on the ‘Special Law for the Promoton of Venture Businesses.’ This is quite a unique insttuton because there is no similar legislaton case in the other countries. Korean government provides certfed venture companies with various benefts such as tax benefts, generous stock opton issues, extended guarantee by government owned fnancial insttuton, preferred supplier status for government purchase, alleviated public stock oﬀering requirements, and so forth. This study uses binary variable to measure the frm obtained venture company certfcaton that takes on the value of 1 if received venture company certfcaton (venture company certfcaton = 1) and 0 otherwise (non-venture company certfcaton = 0).
Venture capital investment
Previous research suggested that the investment of VC aﬀects the tme to IPO. Gompers and Lerner (1997; 2001) argue that venture frms that have obtained VC investment go public faster than frms without VC investment. Venture frms endorsed by VC can secure additonal fnancial resources at the proper tme, thus they can grow relatvely fast. In additon, venture frms endorsed by VC atain rapid growth, because VC ofen helps venture frms by providing non-fnancial resources such as marketng support, managerial advice, human resources supply, and alliance arrangements with potental customers and suppliers, all of which can increase the chance that these startups become successful. An endorsement by a respectable VC investor also signals the quality of a venture frm. By doing so, the endorsing organizaton’s legitmacy carries over to the recipient, providing it credibility, contact, and support for the founders, building a start-up’s image, and facilitatng the startup’s access to resources. Therefore, the reputaton of VC helps venture frms go to IPO faster (Gompers 1996; Yoon et al. 2005). This study uses a binary variable to measure VC support that takes on the value of 1 if it received VC (VC investment = 1) and 0 otherwise (no VC investment = 0).
The growth of NTVs
NTVs exploit business opportunites with diﬀerentated technology in areas of rapid technological change. NTVs are under a higher level of uncertainty than existng frms, thus, they lack sufcient fnancial resources for R&D and marketng compared to existng frms. An IPO allows a frm to tap a wide pool of investors to provide it with capital for future growth, repayment of debt, and/or working capital. And once a frm is listed, they are able to enhance their reputaton by introducing the frm’s value outside of the frm. But, IPO frms sometmes exhibit a decline in post-issue operatng performance because there is potental for higher agency conﬂicts, lower ownership retenton, and IPO expenses (Jain and Kini, 1994). Despite these drawbacks, NTVs have no choice but to implement IPOs as a crucial strategy and try to reduce the tme required to IPO. Researchers thus adopt the IPO event as a measure for the rate of the NTVs’ growth (Chang, 2004; Stuart, et al., 1999). The tme to IPO is measured by months since the date of founding. This study takes the logarithm of this variable for the adjustment of scale.
Industry sub-type characteristcs
Characteristcs of industry sub-types aﬀect venture frm’s tme to IPO (Chang, 2004; MacMillan, et al., 1985; Stuart, et al., 1999). The market stage also inﬂuences alliance formaton (Eisenhardt and Schoonhoven, 1996). I defned an IT frm as the frm which was assigned an IT index when listed on KOSDAQ. IT KOSDAQ index classifes communicatons and broadcastng, IT sofware, and IT hardware. Communicatons and broadcastng includes communicatons services and broadcastng services. IT sofware covers internet, sofware, computer services, and digital contents whereas IT hardware covers communicatons equipment, IT equipment, semiconductor, and components.
Stock Market Conditons
Stock market conditons inﬂuence the tme to IPO (Chang, 2004; Stuart, et al., 1999). Founders and fnancial investors tend to decide to go public because high subsequent investment returns are expected from the buoyant stock market for IPOs. The IPO process in Korea usually takes 3 months. This study thus measures the stock market conditon as the composite stock exchange index of KOSDAQ from 3 months before the IPO date.
This study controls the frm size. Firm size is used to account for the greater resources and choices available to larger frms with a greater ability to invest in technology and innovaton as well as potental scale advantages (Scherer and Ross, 1990). This study measures frm size as the log (10) of yearly sales just before the IPO.
Human capital theory maintains that knowledge provides individuals with increases in their cognitve abilites, leading to more productve and efcient potental actvity (Schultz, 1959; Becker, 1964; Mincer, 1974). Two key demographic characteristcs such as formal educaton and previous work experience underlie the concept of human capital (Becker, 1964). a founder’s level of formal educaton is calculated based on a classifcaton of the founder’s informaton according to two levels. The higher level is a master’s or doctorate degree. The lower level is an undergraduate degree or lower. The previous work experience takes on the value 1 if a founder has worked in a related industry before and 0 otherwise. The functonal background takes on the value 1 if a founder’s undergraduate major or career experience is in output functons and 0 otherwise.
Descriptve statstcs and correlatons
Table 1 presents means, standard deviatons, and correlatons for the measures. VIFs (variance inﬂaton factors) for all the regression models are less than 2, which are well below the guideline of 10 recommended (Chaterjee and Hadi, 2006).
|3||Communicatons and broadcastng||04||.19||-.18*||-.19*|
|4||KOSDAQ market index||705.41||232.91||.10||-.09||-.02|
|5||Yearly sales before IPO||315.73||368.38||-.04||.09||-.13||-.03|
|6||Level of educaton||.29||.46||-.13||.11||.05||-.06||.02|
|7||Related industry experience||45||.50||.01||.01||-.04||-.09||-.10||.01|
|8||Alliance with a business group||.51||50||.01||.02||-.07||-.10||-.07||-.07||.34**|
|11||Time to IPO||6.20||2.46||-.10||.04||.17*||.05||.04||.06||-.31**||-.65**||-.36**||-.50**|
|n = 170, * p < .05; ** p < .01|
The features of the sample frms are described as follows. The yearly sales just before the IPO are 315 billion won on average and we can defne those frms are SMEs. In the IT industry, less than 1% of frms are in communicatons and broadcastng, 47 % of the frms are in the IT sofware (internet, sofware, computer services, and digital contents), and 49 % of the frms are in IT hardware (communicatons equipment, IT equipment, semiconductors, and components). The founders with a master’s or doctoral degree consttute 29 %, and with related industry experience 45 %. 51 % of the frms had alliances with BGs and 56% of the frms are certfed as venture companies. 75% of the frms obtained VCs investment. The dependent variable, the tme to IPO, it is 6.2 years on average.
To test the hypothesis, the present study adopts the four steps of Baron and Kenny (1986). Baron and Kenny (1986) suggest four steps to establish mediaton. Step 1 requires that the independent variable is signifcantly related to the dependent variable; step 2 requires that the independent variable is signifcantly related to the mediator; step 3 requires that the mediator aﬀects the dependent variable while controlling for the eﬀect of the independent variable. And fnally, when these conditons are satsfed, step 4 requires that the eﬀect of the independent variable on the dependent variable is insignifcant when controlling for the mediator in order to indicate complete mediaton; otherwise partal mediaton is indicated. The eﬀects in both steps 3 and 4 are estmated in the same regression equaton.
Model 1 tests the relatonship between independent variables and frms’ growth which explain control variables, independent variables, and the dependent variable of tme to IPO. Among the control variables, relatedindustry experience of an entrepreneur (p < .01), BG collaboraton (p < .01) and venture certfcaton (p < .01) are negatvely signifcant to tme to IPO.
|Model 1 |
time to ipO
|Model 2 |
|Model 3 |
time to ipO
|Communicatons and broadcastng||.418||-.548||.255|
|High academic degree||-.021||-.127||-.031|
|Prior experience in a related industry||-.382**||.955*||-.348*|
|Mediatng variable||VC investment||-.666**|
|Cox and Shell R2||.409|
|n = 170, * p < .05; ** p < .01|
Model 2 tests the relatonships stated in Hypotheses 1-1 and 1-2, explaining the dependent variable of VC’s investment. IT S/W and Relatedindustry experience of an entrepreneur in control variables are positvely signifcant to VC’s investment, BG collaboraton (p < .01) and venture certfcaton (p < .01) are positvely signifcant to VC’s investment. However, the relatonship between level of educaton of an entrepreneur and VC’s investment is not signifcant. Therefore, Hypotheses 1-2 and 1-2 are supported.
In the fnal step of the mediaton analysis, the growth of NTV was regressed on independent variables, VC’s investment, and the control variables. Model 3 indicates that the negatvely signifcant relatonship (β = -1.627, p < .01 between BG collaboraton and tme to IPO becomes weaker (β = -1.563, p < .01) when the alliance with VCs’ investment is entered into the equaton (p < .01). The negatvely signifcant relatonship (β = -.616, p < .01 between venture certfcaton and tme to IPO becomes weaker (β = -.320, p < .01) in the same manner. As a conclusion, VC’s investment has a partal mediatng eﬀect. Thus, hypotheses 2-1 and 2-2 are supported.
The purpose of this study is to examine how VCs in developing countries invest in new technology ventures. The core of tested models can be recapitulated as follows: (1) the endorsements by respectable organizatons inﬂuence the likelihood of VCs’ investment; and (2) VC’s investment may have mediatng eﬀects on the relatonship between the endorsements by respectable organizatons and NTVs’ growth. In the results, collaboraton with BGs and certfcaton of government are positvely associated with NTVs’ obtaining VC’s investment. And VC’s investments are helpful for the growth of NTVs.
The research contributon of this study is to expand the entrepreneurship research feld by developing and testng a mediatng model that provides an explanaton of the NTV performance relatonship in the context of developing countries. From a signalling theory perspectve, it is important to understand the resource providers which lure VC’s investment as a linkage between external endorsement and the NTV growth in a developing country.
And, the results of this study provide practcal implicatons to the entrepreneurs of NTVs and policy makers in developing countries. First, because there is market failure in developing countries, VCs judge the endorsement by BGs and government as an important factor for their investment decision making. Therefore, entrepreneurs of NTVs in developing countries should collaborate with BGs or get certfcaton form government strategically. And policy makers in developing countries should introduce the relevant policy that can give a variety of incentves to BGs which collaborate with NTVs and should build up the certfcaton system to select the promising NTVs.
Nevertheless, this study has some limitatons. I adopt tme to IPO as a measure for venture performance. Related research measures the tme to IPO as the indicator of NTV’s growth (Chang, 2004; Deeds, et al., 1997a; 1997b; Stuart, et al., 1999). I believe this event is a meaningful interim measure of an NTV performance because plenty of fnancial resources are required to maintain venture frm consistency. This measure is not perfect since not all the ventures decide to go public. Thus, I acknowledge the limitaton in using tme to IPO as a performance indicator. In the future, using diverse dependent variables would signifcantly improve our understanding on the signalling mechanism of external endorsement. This study adopts tme to IPO as a dependent variable to investgate the signalling eﬀect of external endorsement. Prior research measuring NTV performance with market value in the process of IPO as well as tme to IPO (Stuart, et al., 1999) has shown that the inﬂuence of resource holders signalling mechanism on tme to IPO and frm value evaluaton are diﬀerentated. Time to IPO is a frm performance indicator and this suggests that for resource holders who provide resources for frm growth it may serve an important role as a signal of promising performance in the growth stage of ventures, while market value at IPO can be used to measure how the ventures are valued in the IPO process. Prior studies argue that underwriters, insttutonal investors and individual investors act as a signal and so inﬂuence market value at IPO (Megginson and Weiss, 1991; Podolny, 1993). These signalling eﬀects may be helpful to new ventures that have not yet proven to be viable. Further study is thus necessary in order for us to understand the exact nature and extent of these relatonships.
This study also encourages future research to identfy the role of endorsement by government support in other types and countries. Many governments are keenly interested in nurturing their new ventures as they can create new employment, develop new technology, and contribute to natonal economic growth (Acs and Audretsch, 1990). Due to these positve externalites coming from the promoton of new business start-ups, the government needs to distribute more resources to new start-ups than free markets typically do. Namely, because venture capitalists make their commitments for a capital gain, they are not concerned with positve socioeconomic externalites. Recently, the governments in advanced countries provide more indirect supports in regulaton, policy, and certfcaton rather than direct ones fnancially (USSA, 1995; OECD, 1997). The governments have limited resources but are interested in maximizing the eﬀect of distributng more resources to promising frms. Therefore, they try to fnd indirect supports to play the role of endorsement to induce other resource holders to provide their resources favorably. Research fnding this issue will be helpful for the governments which are considering indirect support.
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