Premium
How can new ventures command a price premium with innovations in emerging markets?
Author(s) -
Shi Haina,
Xu Haoping
Publication year - 2018
Publication title -
randd management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.253
H-Index - 102
eISSN - 1467-9310
pISSN - 0033-6807
DOI - 10.1111/radm.12316
Subject(s) - initial public offering , underwriting , business , leverage (statistics) , new ventures , information asymmetry , valuation (finance) , finance , venture capital , emerging markets , capital market , welfare , monetary economics , industrial organization , entrepreneurship , economics , market economy , machine learning , computer science
Successful financing is critical for new ventures' survival and future sustainable growth. With the unique institutional characteristics, it is especially difficult for new ventures in emerging economies to transform innovation capital into favorable investor responses (such as willingness‐to‐pay, WTP) during the process of initial public offerings (IPOs). Based on the patent records from a unique sample of Chinese firms, we demonstrate that new ventures can successfully leverage innovation for higher WTP in IPOs contingent on the existence of venture capital ownership and reputable underwriter endorsements. These financial intermediates can send inside‐out and outside‐in signals to market investors to reduce information asymmetry. Our study contributes to research on the valuation of innovations in IPOs. We also provide practical implications to managers and investors of new ventures. We provide implication to managers and investors of new ventures on how to increase the benefits from innovations, which fosters national economic growth and social welfare.