TY  - JOUR
AU  - Higgins,Matthew J.
AU  - Stephan,Paula E.
AU  - Thursby,Jerry G.
TI  - Conveying Quality and Value in Emerging Industries:  Star Scientists and the Role of Learning in Biotechnology
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14602
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14602
L1  - http://www.nber.org/papers/w14602.pdf
N1  - Author contact info:
Matthew Higgins
College of Management
Georgia Institute of Technology
800 West Peachtree Street, N.W.
Atlanta, GA  30308
Tel: 404-894-4368
E-Mail: Matt.Higgins@mgt.gatech.edu

Paula Stephan
Department of Economics
Andrew Young School of Policy Studies
Georgia State University
Box 3992
Atlanta, GA 30302-3992
Tel: 404/413-0160
Fax: 404/413-0145
E-Mail: pstephan@gsu.edu

Jerry Thursby
Georgia Institute of Technology
E-Mail: jerry.thursby@mgt.gatech.edu
AB  - 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.
ER  -