Does Information Asymmetry Influence Hi-tech Entrepreneurial Financing?

Exploring the effective ways of start-up financing is an important and practical issue to technological innovation and economic development. This paper aims to investigate the impacts of information asymmetry on the high-tech start-up financing preference, and whether an entrepreneur’s internationality features moderate the main effects. A sample of 500 high-tech start-ups and new ventures was collected at Shenzhen, China. Regression models are designated for testing both the main effects predicted in research hypotheses and the predicted moderating role of an entrepreneur’s internationality features. Our test results lead to 3 findings: firstly, in the high-tech industries, the information asymmetry mitigated by disclosing intellectual properties can significantly increase the start-up preference for external financing. This finding can be explained by the reduction of agency costs of debts. Secondly, the lessened information asymmetry can shorten the life cycle of start-up financing under the pecking order hypothesis. Lastly, the liability of foreignness is observed to have a significant positive moderating role on the main effects under the investigation. It can be concluded that the information asymmetry and the liability of foreignness are crucial factors influencing start-up financing decisions.This conclusion implies that reducing the information asymmetry by adequately disclosing technological strength and tacit knowledge can benefit the entrepreneurial financing for the high-tech start-ups and new ventures at the early stages, as well as provide an effective shortcut to the start-up financing cycle. Furthermore, the introduction of overseas technologies, funds, knowledge, experiences, and entrepreneurship into the high-tech start-ups does not create the liability of foreignness, and on the contrary, it is an “asset” that can help improve entrepreneurial financing decisions.