Working Paper: NBER ID: w14602
Authors: Matthew J. Higgins; Paula E. Stephan; Jerry G. Thursby
Abstract: 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.
Keywords: No keywords provided
JEL Codes: D80; G10; J33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Presence of a Nobel laureate (A14) | Firm valuation (G32) |
| Nonfinancial metrics (G39) | Firm valuation (G32) |
| Change in investor perceptions (G40) | Importance of nonfinancial metrics (G39) |