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A Signaling Theory Of Entrepreneurial Venture’s Valuation
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.ORCID iD: 0000-0001-9348-7505
2014 (English)In: Academy of Management. Annual Meeting Proceedings, ISSN 2151-6561, E-ISSN 2151-6561, Vol. 2014, no 1Article in journal (Refereed) Published
Abstract [en]

This paper investigates how early termination of venture capital (VC) investment in entrepreneurial ventures affect the ability of these young ventures into acquiring further resources necessary for survival and growth. We propose that young entrepreneurial ventures face a higher cost of external financing if existing investors stop investing in the next rounds of financing. Future investors, faced with great unobservable qualities of young companies and the uncertainty surrounding their financial prospect, rely on observable characteristics to appraise a company; The continuation of investment by existing investors confers a positive signal about the quality of young ventures and that young ventures, as endorsed by further commitment of capital, are more likely to perform better than otherwise comparable ventures that lack such escalated commitment.

Place, publisher, year, edition, pages
Academy of Management , 2014. Vol. 2014, no 1
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:kth:diva-161647DOI: 10.5465/AMBPP.2014.16575abstractOAI: oai:DiVA.org:kth-161647DiVA: diva2:851220
Note

QC 20150904

Available from: 2015-09-03 Created: 2015-03-13 Last updated: 2017-12-04Bibliographically approved

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Publisher's full texthttp://proceedings.aom.org/content/2014/1/16575.abstract

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Mohammadi, Ali

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