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The effect of trademark breadth on IPO valuation and post-IPO performance: an empirical investigation of 1510 European IPOs
Abstract
Trademarks differ in breadth and can cover a wide range of categories of goods and services. We draw on real options theory and argue that greater trademark breadth constitutes a valuable real option that is associated with higher firm valuation and performance. We analyze a sample of 1510 firms that went public in Europe between 2002 and 2015 and find a positive effect of trademark breadth on initial public offering (IPO) valuation and post-IPO performance. We implement a contingency analysis to contrast real options and signaling theory and find stronger support for the real options perspective.
... Patents, similar to trademarks (Fisch et al., 2022) which have been already paid for, are considered an alternative signal of innovativeness, effectiveness, and future value. In a European versus United States study of patent value as a signal of worth over a similar time frame, Useche found that patents do signal value for firms going public, although the power of the signal varies across countries (Useche, 2014). ...
... On one hand, our research indicates that at least post-SOX patents improve valuation and performance of recent IPOs. Examining trademarks instead of patents, Fisch et al. (2022) find that greater trademark depth leads to higher IPO evaluation and better post-IPO performance. On the other hand, Vismara (2014) notes that firms with more patents tend to be more likely to finance with debt, while firms with more R&D tend to raise equity. ...
Research and development (R&D) investments and patents influence initial public offering (IPO) valuations. After Sarbanes‐Oxley (SOX) legislation was enacted in 2002, there was a shift from a display of ‘Effort’ to ‘Results’. SOX legislation made fundamental changes to corporate accounting practices and the process of going public. We investigated how the IPO market responded to SOX legislation. Compliance with SOX was disproportionately costly for small, research‐intensive firms. Using Signaling Theory, we focused on whether the existence of patents became a valuable signal for the effectiveness of research and development expenditures (R&D). Our findings indicated decreased importance of R&D expenditures (signaling ‘effort’ to innovate). We also found increased importance of patents (intermediate ‘results’ of R&D efforts) post‐ relative to pre‐SOX. We concluded that patent activity at least partially replaced and moderated R&D in its role as a value driver of IPOs in the post‐SOX environment.
... Chen et al. (2008) emphasized that local governments actively engage in earnings management activities among listed companies to fulfill targets set by central authorities. They often employ administrative measures such as financial subsidies and tax incentives to enhance enterprise performance under their jurisdiction and facilitate listing qualifications and rights offerings (Fisch et al., 2022;. Wang et al. (2015) also discovered that local governments allocate greater financial subsidies to prospective IPO candidates as part of their competition for IPO resources. ...
... This finding validates the occurrence of "performance change" in IPO companies, which refers to the challenge of maintaining pre-IPO performance levels and the significant decline in operating performance post-IPO. In fact, this phenomenon is prevalent across various countries' capital markets, with emerging economies experiencing more pronounced effects (Chan & Li, 2022;Fisch et al., 2022). The "performance change" issue also persists as a chronic problem in China's capital market. ...
As an important tool for local governments to intervene in the listing process in their jurisdiction, the implementation effect of government subsidy has been quite controversial. This study examines the pricing mechanism of Initial Public Offerings (IPO) within China’s macro institutional environment. The period from April 2012 to December 2015 was selected as the sample observation period, with companies listed on Growth Enterprise Market (GEM) as the study objects. By focusing on IPO firms’ short-term excess returns, the multiple linear regression model and propensity score matching method (PSM) were applied to evaluate the actual impact of local government intervention through financial subsidies during the listing process. The results show that government subsidies improve IPO firm’s short-term excess returns. This promotion effect is more significant in state-owned enterprises rather than in private enterprises. Moreover, the implicit window guidance weakens the promotion effect of government subsidies on the short-term excess returns. Further, the more government subsidies the IPO firms receive, the worse their long-term performance will be. The findings demonstrate that local governments employ financial subsidies to expedite the listing process within their jurisdiction, thereby facilitating IPO companies in generating short-term excessive returns while simultaneously impeding the normal production and operation. The conclusion enhances theoretical understanding regarding high underpricing, while also offering investors a novel approach to interpreting government subsidy information and assessing IPO firm’s earnings sustainability.
... This detailed understanding of trademarks underscores the complexity inherent in their categorization and comparison [Fisch et al. (2022); Kekezi and Klaesson (2020)]. Trademarks, by their very nature, encapsulate a broad spectrum of intellectual property, from visually distinctive logos to unique product shapes, re°ecting a bran's identity and value in the marketplace [De Vries et al. (2017);Fisch et al. (2022); Graham et al. (2018)]. ...
... This detailed understanding of trademarks underscores the complexity inherent in their categorization and comparison [Fisch et al. (2022); Kekezi and Klaesson (2020)]. Trademarks, by their very nature, encapsulate a broad spectrum of intellectual property, from visually distinctive logos to unique product shapes, re°ecting a bran's identity and value in the marketplace [De Vries et al. (2017);Fisch et al. (2022); Graham et al. (2018)]. However, this diversity presents signi¯cant challenges when attempting to compare trademarks on a like-for-like basis. ...
Innovative firms are threatened by price-based generic competition, particularly following patent expiration. To combat the so-called “patent cliff” that occurs at patent expiry, some firms are turning to a strategic approach known as value transference. This integrative intellectual property strategy involves transferring the value of a limited life right, such as from a patented invention, to other forms of intellectual property rights, like trademarks. If utilized appropriately, these trademarks can preserve this value indefinitely. The theoretical considerations in my study suggest that an integrated intellectual property rights strategy can enhance financial performance following generic entry. With this paper, I derive propositions to model this effect of strategic intellectual property rights integration. Further, my model extends the analysis of value transference to successor products. It indicates that expanding intellectual property integration strategies beyond its original boundaries to successor offerings amplifies this positive effect. Further, time is identified as imperative for successful intellectual property integration.
... 4 The underlying assumption is that when approaching ECF markets, ventures tend to conform. This approach is a common behavior to achieve legitimacy when raising external equity (Ponomareva et al., 2022) and is frequently used in corporate finance studies in contexts such as initial public offerings (Bertoni et al., 2014;Colombo et al., 2019;Fisch et al., 2022) or digital finance offerings (e.g., Block et al., 2022;Cumming et al., 2019Cumming et al., , 2024Huang et al., 2022;Vismara, 2019). Coherently, we observe that the environmental orientation of a venture listing on an ECF platform is correlated to the fraction of EOV listed on such a platform in the previous year (1.027***, Model 2 of Table 4). ...
There is an important research tradition concerning the financial implications of social and environmental ethics. This study investigates the short- and long-term financial performance of ventures with explicit environmental commitments seeking to raise funds in equity crowdfunding (ECF) markets. Our results indicate that environmental orientation positively influences short-term funding performance, though only when accompanied by the costly signal of robust corporate governance mechanisms. In the long run, environmental orientation also positively impacts performance, albeit with only weak statistical significance when observed alone. Governance again serves as a positive moderator, but its effect is less significant relative to the short term. However, environmental orientation does feature a strongly significant positive impact on long-run performance when combined with a successfully conducted initial ECF campaign.
... Third, by using bidding information in the auctioned IPOs, we add to the growing literature on IPO pricing (Ritter 2003;Ljungqvist 2007;Fisch et al. 2022;Liu et al. 2023). Prior research has used first-day return as proxies for IPO underpricing, however, first-day returns cannot capture the divergence in institutional investors' opinions. ...
Using a dataset of institutional bids for IPOs, we study how relationships with lead underwriters impact institutional investors’ bidding strategy in the auctioned IPOs. Our paper finds that strong business ties lead to higher bid prices. The effect is more pronounced among IPO firms that receive less market attention, and is attenuated for IPOs certified by reputable intermediaries. We propose that rent-seeking incentives may be the potential mechanism for this relationship-based bidding. Our study highlights that the business connection between underwriters and institutional investors has effect on the IPO pricing.
... The results (Models 2) confirm a positive and significant interaction effect with squared ambitions, which is in further support of H3. Third, we employ alternative intellectual property variables that could provide signaling mechanisms similar to granted patents (Fisch et al., 2022). When we rerun the analysis with a dummy variable, indicating whether new ventures own trademarks (mean = .11), ...
When entrepreneurs express their ambitions to achieve extraordinary financial growth, it may signal growth potential to early-stage investors. However, as this study proposes, promising overly high growth ambitions might backfire for entrepreneurs—dismissed as cheap talk and even penalized due to investors’ credibility concerns. Therefore, entrepreneurs may need to complement their high ambitions with costly signals, such as citing their rich experiences or patents. Such costly signals can serve as credibility buffers and transform high ambitions from cheap talk into credible signals. Two empirical studies, based on campaign data from an equity crowdfunding setting and a conjoint experiment, support these arguments.
... For example, experienced top management teams (Cohen and Dean, 2005), long lockup periods for existing owners (Arthurs et al., 2009), strong monitoring and a knowledgeable board of directors (Arthurs et al., 2008;Judge et al., 2015), retained investor ownership (Bruton et al., 2009) and organizational virtue displayed in the IPO prospectus (Payne et al., 2013) all decrease underpricing. Relatedly, economic and process attributes such as intellectual property with clear rents (Fisch et al., 2022;Heeley et al., 2007;Morricone et al., 2017), corporate venture capital ownership (Wang and Wan, 2013) and longer IPO process time (Payne et al., 2022) also decrease underpricing at IPO. However, as we will argue next, this research does not consider that asymmetry of information exists in both directions at the time of IPO. ...
Going public not only provides access to capital, but it is also an important mechanism through which firms can obtain feedback on opportunities from a wider set of stakeholders and market participants. We develop this argument by examining how feedback from the Initial Public Offering (IPO) process in the form of underpricing influences a firm's subsequent investment decisions. Our results indicate that underpricing is associated with increases in investment spending in R&D and Capex post-IPO. Further, we find that at extreme levels of underpricing these shifts in investments have a detrimental effect on firm outcomes. Our work highlights that going public significantly alters the information environment and shapes the perceived opportunities of newly public firms in important ways. As such, the IPO and underpricing are not simply outcomes, but rather are important contributors to how firms allocate resources and pursue opportunities into the future. Further, findings suggest that effectively interpreting information from markets may be a previously overlooked capability that influences successful transition to public firm status.
... Such affiliations affirm the new venture's legitimacy, as well as providing substantive benefits, such as mentoring, access to resources and ongoing monitoring (Plummer et al., 2016). Arguably, prestigious actors value their reputation highly and therefore guard carefully against tarnishing it (Fisch et al., 2022). ...
Despite the relevance of crowdfunding as a financing tool for underrepresented entrepreneurs, prior research pays scant attention to the funding gap for refugee entrepreneurs. Using a composite framework that integrates both entrepreneurship research and signalling theory, the current study investigates how microfinance institutions (MFIs) and refugee entrepreneurs can deploy signals to pursue entrepreneurial opportunities on digital platforms. The results, based on refugee data pertaining to 5615 loans on Kiva during 2015–2018, reveal that when refugee loan campaigns are affiliated with an MFI that itself features lower default rates, achieves high profitability, adopts an entrepreneurial support orientation, operates transnationally and is digitally focused, the campaign achieves better crowdfunding performance outcomes than refugees campaigns affiliated with an MFI that lacks these features. These findings provide clear evidence that when MFIs offer reputational signals, visible to the crowd of lenders, it can increase entrepreneurial financing and democratize resource acquisition among financially excluded refugee entrepreneurs.
Plain English Summary
Can microfinance institutions boost crowdfunding among refugee entrepreneurs and their small businesses? Yes, they can. Third-party signals may support growth in alternative finance for #refugees. While research on entrepreneurship has largely targeted immigrant entrepreneurs, the refugee context has been neglected, namely how refugee entrepreneurs fund their economic activities. With signalling literature on new venture financing of entrepreneurship being greatly fragmented, we contribute to the understanding of how crowdfunding microfinance boost venture financing of refugees. We study the gain of legitimacy by refugee entrepreneurs displayed through reputational signals intertwined with the reputation of microfinance institutions (MFI). Our results reveal higher success in funding outcomes when the loan campaign is linked with microfinance institutions with lower loan default rates, higher profitability, driven by entrepreneurial support, operating internationally and with a digital presence, compared with MFI that lacks these features. Our work has relevant implications for underrepresented refugee entrepreneurs, crowdfunding actors, policymakers and scholars. Our findings indicate that the affiliation between refugees-microfinance institutions creates certain reputational signals which enhance entrepreneurial finance and shape conditions for societal integration in the host country. For crowdfunding platforms, we show that to develop an effective, self-perpetuating entrepreneurial ecosystem, they should work to build their reputation among lenders, by capitalizing on and making third-party signals more readily available. At the same time, they must conduct due diligence to assess and monitor MFIs’ behaviour. Policy makers are recommended to build up on this digital microfinance experience to enhance new venturing finance refugee programs. We, thus, extend prior findings about the importance of third-party affiliations by establishing a composite framework of third-party signals in the context of new venture financing for financially excluded communities, and refugees in particular. Accordingly, for scholars, we offer cross-disciplinary insights into which characteristics of intermediaries can facilitate links between the supply (crowd of lenders) and demand (refugee entrepreneurs) sides in prosocial crowdfunding.
... Moreover, the additional protection granted becomes lower than the additional costs to file the trademark, making the marginal value of a new trademark negative. Last, Fisch et al. (2022) draw on real options theory and document that greater trademark breadth constitutes a valuable real option that is associated with higher firm valuation at the IPO and performance after the IPO. ...
Plain English Summary
In this paper, we conduct a systematic literature review on entrepreneurial ventures’ valuation drivers and their underlying theoretical lenses, highlighting how and why they vary along firms’ life cycle. The valuation of entrepreneurial ventures is a challenging task for practitioners and a relevant issue that attracts the attention of scholars in entrepreneurship, finance, management, and economics. The literature on the topic is highly fragmented. Indeed, the context in which venture valuations are observed (e.g., in private deals or public offerings) differs across different financial milestones. The introduction of new digital financing channels (e.g., crowdfunding, initial coin offerings) and the increased diversity in the sequence of financial milestones that ventures go through further challenge our understanding of valuation drivers. This study is primarily aimed at scholars, offering them a map to create order in what we know about the drivers of entrepreneurial venture valuations and indicating promising avenues for future research.
We theoretically model an entrepreneur’s choice of his firm’s products to trademark, the relation between the number of trademarks and venture capital (VC) investment staging, long-run operating performance, and successful firm exit probability. We test model predictions using a large dataset of trademarks registered by VC-backed private US firms. We find that firms with a larger number of trademarks at first VC investment have a smaller number of VC financing rounds; have larger long-run sales and employment; and have greater probabilities of successful exit (initial public offering [IPO] or acquisition). Our instrumental variable analysis demonstrates that more trademarks causally enhance firm performance and reduce VC staging.
JEL code: G23, G24, L26, O34
Initial coin offerings (ICOs) have emerged as a new form of digital and decentralized finance. They have the potential to disrupt conventional finance sources and expand capital-raising alternatives. However, their decentralized nature, lack of regulation, and market complexity, along with fraud events, have led to a crisis of trust. This crisis jeopardizes firms' fundraising success. This study examines the role of specialized venture capitalists (VCs) in overcoming transparency issues and restoring trust in the market and ICO issuers. Based on data from 191 ICOs, our results show that VC-backed firms have higher ICO success. This success is more pronounced for firms affiliated with VCs specializing in blockchain technologies, especially if ICO issuers are opaque and riskier. Specialist VC affiliation leads investors to buy more tokens. This effect increases with additional affiliations with other specialized VCs. For early-stage firms with a product/service, generalist VC affiliation also plays a certification role, enhancing the probability of ICO success.
Using the market‐based‐view of the firm, this study investigates the relationship between trademark intensity and firm performance under the conditions of product market competition, total factor productivity, and SG&A efficiency. Higher trademark intensity is more positively associated with performance, and this positive association is amplified under higher product market competition or weakened under higher SG&A efficiency or total factor productivity. To address potential endogeneity, we employ partialing out lasso regression and cross‐fit partialing out lasso regression techniques, which yield consistent results. The findings provide valuable insights into the interplay between trademark intensity and firm performance.
We unravel the conditions under which the type of education found among board members mitigates the uncertainty in new equity markets. Our results indicate that issuers in low R&D industries—as well as those faced with complex organizational structures—leave less money on the table when their boards are dominated by executives with managerial skills. Conversely, boards with highly specialized members in small and knowledge‐intensive firms reduce underpricing. Finally, we document that both types of board education lessen initial public offering share–price volatility in the immediate post‐issue period. This research is the first to derive conclusive evidence that more executives in the boards with managerial skills and boards with highly specialized members facilitate price discovery in signaling issuer reputation on the first trading day. This study has implications that we provide investors with unique non‐financial information, boards' “education capital,” that can be considered before making investment decisions.
This paper examines the impact of innovator CEOs on their firms' IPO underpricing, long‐run performance and post‐IPO innovation. Firstly, we find that IPO firms led by innovator CEOs experience lower first‐day returns (indicating lower IPO underpricing). This phenomenon can be attributed to a CEO's innovative ability, as it plays a pivotal role in mitigating information asymmetry within the IPO market. Secondly, we observe that IPO firms with innovator CEOs have greater IPO long‐run performance. Lastly, our analysis reveals that IPO firms led by innovator CEOs demonstrate greater firm‐wide innovation up to 4 years after the IPO. Overall, our study highlights the effect of CEO characteristics on firm performance in the IPO market.
Utilization of companies trademarks and industrial designs in the market strengthens activities of selected companies. Authors of the paper analyse the significance of a trademark and industrial design for the level of the company's industrial property safety. The threats resulting from the lack of trademark registration were identified and analysed, and selected cases from the case law in the field of trademark protection were reviewed to indicate the scope of protection and safety of products placed on the market.
We study how trademarks affect reuse of creative works in the comics industry. As a creative industry, the comics industry systematically relies on copyrights. But trademark protection can also be exploited to generate income from the reuse of comic characters or to strategically exclude others from reuse. Our unique data set combines US trademark records of comic characters with information on reuse in print media and franchise products from 1990 to 2017. We find that, on average, additional trademark protection is associated with a reduction in reuse in printed comic books of about 19%. We highlight three mechanisms: first, the negative relationship between trademarking and reuse has been especially pronounced since the early 2000s, when the arrival of digital technologies lowered the costs of entry, promotion, and distribution. Second, our results are driven by less reuse by third parties, not trademark holders. Third, reuse is higher when trademark owners license comic characters to third parties. The negative association between trademarking and reuse carries over to franchise products, but it is weaker and tied to the era of digitization, with a 2% decline in reuse in franchise movies and 9% lower reuse in video games.
We investigate the implications for serial entrepreneurs in terms of IPO valuation. Using the sample of 2,017 firms that went public in U.S. between 1998 and 2017, our findings show that the positive impact of board members’ entrepreneurial track record on the the valuation of IPO is more salient in young and mid-age firms. Moreover, small and medium-sized businesses benefit more from entrepreneurial expertise than large corporations. Finally, the relation between an established track record and IPO valuation is more significant for firms with venture capital backing.
Platforms often compete over non-price strategies such as the exclusive distribution of products. But these strategies are not always welfare-enhancing. Using rich data on audiovisuals distributed on platforms in Brazil, we find that non-exclusive distribution and availability of titles across platforms is more effective in deterring online piracy than in the single-homing case. Moreover, for the subset of domestic movies, it induces higher average investment in the quality of new titles upstream. We discuss options of copyright and competition policies in the light of these findings.
While trademarks are mentioned in many firms’ IPO prospectuses, their influences on the IPO valuation process are underexplored. This paper studies the relationship between a firm's pre-IPO trademarks and its IPO underpricing. Using 4,457 US IPOs during the period 1980–2018 we find that firms with a larger number of trademarks prior to the IPO date experience significantly less IPO underpricing. We employ a quasi-natural experiment brought about by the 1996 Federal Trademark Dilution Act and an instrumental variable approach to establish causality. Our findings suggest that trademarks help reduce information asymmetry among various IPO participants, leading to less underpriced IPOs.
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The use of signals to overcome information asymmetries and reduce the uncertainty inherent in resource acquisition has become a prominent theme in new-venture financing literature. In particular, the assessment of a wide range of different information signals, with the aim of conveying a venture’s quality and legitimacy to prospective investors, is receiving increased scholarly attention. With contributions from a broad spectrum of diverse research foci investigating interactions with distinct types of investors, the literature on entrepreneurial signaling in new-venture financing has become fragmented, and this is harming further development of the field. This study systematically reviews the different literature streams on entrepreneurial signaling to provide a more integrative framework, which can contribute to the cumulative and evidence-based body of knowledge about the role of entrepreneurial signaling in new-venture financing. Furthermore, the authors identify critical sender-, signal-, receiver-, and environment-related boundary conditions that influence the signaling effectiveness. In this way, the authors identify gaps in the existing literature and map directions for future research.
This editorial to the special issue on “Trademarks and their role in innovation, entrepreneurship and industrial organization” proposes a novel framework to understand why and when firms file trademarks. The three perspectives at the core of the special issue offer several insights on trademark motives but have not been linked for understanding the underlying strategies and contingencies. We propose to study trademark motives in relation to the firm and the innovation life cycle stage. Inspired by the framework, we outline avenues for further research.
Firms increasingly rely upon trademarks, but management research exploiting trademark data is surprisingly limited. Reasons for this include data availability, awareness, and bias toward other sources, in particular patents. I demonstrate how imaginative scholars have used trademarks to capture several elements of how, when, and to what extent firms bring (new) products and services to the market. Their work can inspire further applications, particularly now that trademarks are becoming more strategically relevant for companies and as more data are becoming available. After taking stock of what has already been achieved, I look ahead to original research by discussing conceptual and methodological opportunities.
How do intellectual propriety rights (IPRs) help firms profit from their innovation? Innovation literature frequently turns to patents to measure innovative IPR, but more recent work shifts focus to the other side of IPR, namely, trademarks. This article therefore discusses the effects of trademark strategies when companies decide to introduce their product portfolios in a new foreign market. Entrants might opt for a common trademark across different country markets (integration) or use several country-specific trademarks (responsiveness). This empirical study exploits the quasi-natural experiment created by the tariff shock that affected Spain when it joined the European Union in the 1990s. Data from the automotive industry reveal how non-European companies that already operated in other European countries sought to enter Spain rapidly, using various trademark strategies. The product portfolio characteristics are fixed at entry, so this study can specify how and when trademark responsiveness versus integration affects firm performance. The results reveal that trademark responsiveness increases firm performance if the firms suffer high liabilities of foreignness or newness.
This article analyzes the effects of diversification and brand breadth on firm performance for professional service firms (PSFs). The research aim is two-fold. First, we test whether moving into products may put at risk the core resources that sustain PSFs’ competitive advantage. Second, we study which branding strategies best match their diversification attempts. Broad (narrow) brands characterize a branding strategy with scarce (plentiful) associations to specific product characteristics. We analyzed trademark portfolios of 47 U.S.-based management consulting firms in the 2000 to 2009 time period. Panel regression results suggest that (1) PSFs always benefit from diversification when they remain pure-service providers; (2) performance is positively related to a strategy of specialized narrow brands.
There are competing theoretical explanations and conflicting empirical evidence for the IPO underpricing phenomenon in family firms. The behavioral agency model predicts that loss-averse family firms discount their shares more than non-family firms in order to minimize losses of socioemotional wealth (SEW). By contrast, the endowment effect in prospect theory suggests that family owners maximize their financial wealth (FW) by including SEW in their perceptions of firm value and demanding a higher IPO price to relinquish it. We reconcile these seemingly incompatible predictions by adding insights on the dynamic properties of the reference point in decision framing. Conceiving IPO pricing as a two-stage gamble, we theorize that initial SEW losses entailed by the listing decision increase the disposition of family owners to underprice IPO shares to possibly offset these losses, or to “break even”. In doing so, we advance the behavioral agency model with the aversion to loss realization logic to explain how the decision frames and preferences of family owners change during the IPO process, depending on initial losses of current SEW and new expectations of future SEW. Our analysis of 1,807 IPOs in Europe supports our theoretical expectations, clarifying the trade-off between FW and SEW and explicating the dynamic properties of mixed gambles in family firms.
This paper analyzes the effects of patents and trademarks in the financing of start-ups through venture capitalists (VCs). Patents and trademarks signal a start-up's technological and marketing capabilities. We find that patents and trademarks not only have direct effects on venture capital financing but also have complementary effects. Start-ups that apply for both patents and trademarks yield higher VC funding than do those firms that apply for only one of the two IP rights. Furthermore, we find that the complementarity between patents and trademarks exists only in initial VC funding rounds. Our results suggest that early-phase start-ups seeking their initial VC funding do best when stressing both their technology and marketing capabilities. Accordingly, entrepreneurship policy should encourage start-ups to build both technological and marketing capabilities.
Observable resources, particularly patents, alliances, and team experience, are known to affect a start-up's ability to attract venture capital financing. In this context they potentially fulfill a twofold function: as productive assets and, likely, as signals of characteristics of a venture that are not observable at the time of assessment. In particular, patents, alliances, and team experience may serve as signals of the unobservable quality of a venture's technology. Most existing studies based on firm-level transaction data cannot disentangle signaling from productive effects. Using a conjoint-based survey among 187 European and U.S. venture capitalists, we find they rely on research alliances and, partly, on team experience as signals of technological quality. While patents affect the venture capitalists’ decision making in their property rights function, we find no indication that they serve as technology quality signals.
This paper extends the emerging literature on the value of trademarks for innovation studies and policy-making with the first empirical study at the trademark level. It gives a view on how companies use trademarks and interpret trademark activities. A sample of 660 new Benelux trademarks registered by small- and medium-sized enterprises reveals that 60 per cent of recently registered Benelux trademarks refer to innovation activity, predominantly to product or service innovation. The reference to innovation co-varies with various applicant and trademark characteristics unknown from previous studies. Finally, the sample reveals that most of the trademarks used to signal innovative offers are filed close to its market introduction without combining them with other intellectual property rights. This holds especially for trademarks related to service innovation.
European stock exchanges have repeatedly opened second markets to list small companies. We explain the motivation for the creation of these second markets, and why many of them have failed. We find that the probability of being a takeover target is higher for second-market firms, and that the average long-run performance of initial public offerings (IPOs) on second markets is dramatically worse than for main market IPOs. However, the second markets have been successful in providing firms with the opportunity to raise funds at the IPO and in follow-on offerings. The relative success of London's AIM, which is an exchange-regulated market with minimal regulations, has led other European stock exchanges to establish similar non-EU regulated second markets. Most of the IPOs on these exchange-regulated markets are offered exclusively to institutional investors, and are equivalent to private placements. These IPOs, which frequently raise only a few million euros, rarely develop liquid trading.
Actors within organisations commonly must make choices armed with incomplete and asymmetrically distributed information. Signalling theory seeks to explain how individuals are able to do so. This theory's primary predictive mechanism is ‘separating equilibrium,’ which occurs when a signal's expectations are confirmed through experience. A content analysis finds that most strategic management signalling theory studies have not fully leveraged separating equilibrium. This presents two possible paths for future research. First, some researchers may wish to incorporate separating equilibrium. We illustrate how doing so can uncover new relationships, generate novel insights, and fortify the theory's application. Others who want to theorize about signals, but not examine separating equilibrium, could integrate ideas from signalling theory with other information perspectives. Here a signal becomes one stimulus among many that corporate actors interpret and act upon. We provide research agendas so strategy scholars can apply signalling theory most effectively to meet their research objectives.
We establish prior diversification experience as a key determinant of the relationship between growth of product and international diversification. Prior diversification experience allows firms to overcome short run constraints on simultaneous diversification growth imposed by the difficulty to transfer tacit knowledge, ambiguous competencies, and limited absorptive capacity. Studying U.S. and European firms we find a positive relationship between growth in product and international scope for firms with high and a negative one for those with little prior diversification experience. Further we find that product diversification experience has greater impact than international diversification experience.
Purpose
The research first and uniquely explores the antecedent relationship among three highly studied environmental forces – competitive intensity (CI), market turbulence (MT) and technological turbulence (TT) – in a service context. Next, given the importance of services to the USA and global gross domestic product (GDP) and the unique characteristics of services versus product firms, the research examines the impact of environmental forces on innovation speed capability, a less studied but critical enabler of service innovation. Finally, this study aims to suggest the importance of the sequential relationship between two dynamic capabilities – innovation speed and operational flexibility – to realize advantage.
Design/methodology/approach
This study surveyed 264 US service firms in a business to business context and tested this research model using structural equation modeling.
Findings
The results yielded three major conclusions: in a service context when examining the relationship among the three environmental forces, CI appears to have the driving influence on MT and TT, MT, however, was the only environmental force that this study found to bare positive and significant direct influence on innovation speed. Looking at the zero-order effect of MT and TT on innovation speed this study found each to be positive and significant suggesting a negative suppression effect and innovation speed’s influence on performance relative to competitors is fully mediated by operational flexibility.
Originality/value
The paper contributes to context, as service firms represent the majority of the USA and global GDP. This study extends the literature on the highly studied environmental forces (MT, TT and CI) by examining how they influence each other in an antecedent role and in service context. This study extends service literature by going beyond the influence of environmental forces on innovation to examine the dynamic capability of innovation speed, suggested as uniquely important to service context and distinct from the more highly studied innovation construct. The study also extends prior research in the manufacturing (product) context that suggests the importance of sequential congruence between two critical dynamic capabilities – innovation speed and operational flexibility – necessary to deliver competitive advantage.
Intellectual property (IP) rights are a major component of firms’ strategies to appropriate the benefits of their innovations. This paper aims at assessing the interactions between two types of IP rights, namely patents and trademarks. We first model the effect of these two types of IP rights on the returns of innovations for firms. Based on a supermodularity analysis, we then show that the complementarity between trademarks and patents varies according to the characteristics of the market. Depending on the levels of advertising’s spillovers and depreciation rate, trademarks are found to be complementary or not to patents. Finally, based on a data set encompassing the IP activity of a sample of publicly traded firms among the top corporate R&D investors worldwide, we find that patents and trademarks are complementary in chemical and pharmaceutical sectors, but not in Information and Communication Technologies (ICT) sectors.
This work investigates the relationship between proxies of innovation activities, such as patents and trademarks, and firm performance in terms of revenues, growth, and profitability. By resorting to the virtual universe of Italian manufacturing and service firms, this work provides a rather complete picture of the Intellectual Property (IP) strategies pursued by Italian firms, in terms of patents and trademarks, and studies whether the two instruments for protecting IP exhibit complementarity or substitutability. In addition, and to our knowledge novel, we propose a measure of concordance (or proximity) between the patents and trademarks owned by the same firm and we then investigate whether such concordance exerts any effect on performance. The results suggest that while patents and trademarks independently exert a relevant impact on firm performance, there is no convincing evidence in favour of a complementary role of IP.
We provide evidence on the value of patents to startups by leveraging the quasi‐random assignment of applications to examiners with different propensities to grant patents. Using unique data on all first‐time applications filed at the U.S. Patent Office since 2001, we find that startups that win the patent “lottery” by drawing lenient examiners have, on average, 55% higher employment growth and 80% higher sales growth five years later. Patent winners also pursue more, and higher quality, follow‐on innovation. Winning a first patent boosts a startup's subsequent growth and innovation by facilitating access to funding from VCs, banks, and public investors. This article is protected by copyright. All rights reserved
This paper explores the creation and evolution of new stock exchanges around the world geared toward entrepreneurial companies, known as second-tier exchanges. Using hand-collected novel data, we show the proliferation of these exchanges in many countries, their significant volume of Initial Public Offerings (IPOs), and lower listing requirements. Shareholder protection strongly predicted exchange success, even in countries with high levels of venture capital activity, patenting, and financial market development. Better shareholder protection allowed younger, less-profitable, but faster-growing, companies to raise more capital. These results highlight the importance of institutions in enabling the provision of entrepreneurial capital to young companies.
The benefits of an IP strategy for an innovative project that combines both patenting and trademarking is compared to those of patenting alone. The results of the proposed econometric analysis of patents indicate that a strategy that pairs patenting and trademarking almost doubles patent value. The validity of this result was confirmed by examining several patentee demographic characteristics and an extensive set of patent value indicators regarding breadth and technology potential, prior art and patent background, filing and procedural aspects of a patent and IP usage mode. Quite interesting, when the holder of a utility patent also obtains a design patent, rather than opting for a trademark, there is no enhancement of the premium value.
Research Summary
The resource‐based view of the firm characterizes brands as important resources for firm growth and competitive advantage. Existing studies offer theory and evidence that venture capital (VC) firms enhance the growth of new firms along different dimensions. It is not clear however whether and how VC backing affects the development of brand assets in new technology ventures. In a study of VC‐backed and non‐VC‐backed nanotechnology ventures in the United Kingdom we find a positive effect of VC backing on the development of brand assets. We also find that VC‐backed technology ventures tend to create brand assets with a wider scope, which can be deployed across multiple different product‐markets.
Managerial Summary
Brand strategy is critical for the success of entrepreneurial firms and can be challenging for firms operating in nascent industries that aim to commercialize innovations stemming from general purpose technologies. Such firms face dilemmas on whether to diversify or not into different product‐markets, how many brand assets to develop, and whether to leverage a brand asset across multiple product categories. In a study of nanotechnology ventures we find that venture capital investors can affect the development of brand strategy: VC‐backed ventures tend to develop more brand assets compared with non‐VC‐backed ventures and tend to create brand assets with a wider scope, which can be deployed across multiple different product‐markets.
The use of trademark data in innovation studies is still limited because as yet no guidelines exist to ascertain which trademarks relate to innovation. This paper proposes that a branding strategy approach may help to identify innovation related trademarks. Companies use distinctive branding strategies for innovation and these branding strategies have important consequences for the design of new trademarks and their application scope. Based on a sample of Benelux and Community trademarks, we find that trademarks for brand creation relate more often to product innovation. In addition, we find negative effects of a trademark's industry scope on its relatedness to product innovation, and of a trademark's geographic scope on its relatedness to service innovation. Our findings bear several key implications for further research towards identifying innovation-related trademarks from a branding strategy perspective.
One underexplored factor directly affecting firms’ use of trademarks relates to the fees associated with obtaining a mark. This paper provides econometric estimates of the fee elasticity of demand for trademark applications. Using a panel of monthly international trademark applications, I find that a 10-percent increase in fees leads to a 2.5–4.0-percent decrease in applications. The econometric analysis also highlights that trademark filings react strongly to economic activity. The results bear implications for literature on the value of trademarks and for the use of trademarks as innovation indicator. Specifically, low elasticity estimates suggest that trademarks provide significant economic value to their owners relative to their costs. However, one must exercise caution when comparing trademark numbers across countries to the extent that fees might differ substantially.
We investigate whether patents on human genes have affected follow-on scientific research and product development. Using administrative data on successful and unsuccessful patent applications submitted to the US Patent and Trademark Office, we link the exact gene sequences claimed in each application with data measuring follow-on scientific research and commercial investments. Using these data, we document novel evidence of selection into patenting: patented genes appear more valuable--prior to being patented--than non-patented genes. This evidence of selection motivates two quasi-experimental approaches, both of which suggest that on average gene patents have had no quantitatively important effect on
follow-on innovation.
This work identifies and studies the determinants of trademark value. In particular, it focuses on trademark characteristics that are related to the underlying brand and on legally stipulated characteristics. To reveal the value implications of the identified trademark characteristics, it follows the idea that more valuable trademarks tend to be protected for a longer period than less valuable trademarks, provided that the benefits of this protection exceed its costs. Thus, those characteristics that have a positive association with the duration of trademark protection should indicate more valuable trademarks. The empirical analysis relies on studying trademark activities in the U.S. pharmaceutical industry, largely owing to its heavy reliance on product differentiation to compete in the market. The results suggest that trademark characteristics are an important predictor of trademark value. At the same time, the value interpretation of some characteristics depends on the stage of the trademark protection lifecycle (that is, registration, maintenance, or renewal) under consideration.
We investigate whether patents on human genes have affected follow-on scientific research and product development. Using administrative data on successful and unsuccessful patent applications submitted to the US Patent and Trademark Office, we link the exact gene sequences claimed in each application with data measuring follow-on scientific research and commercial investments. Using this data, we document novel evidence of selection into patenting: patented genes appear more valuable-prior to being patented-than non-patented genes. This evidence of selection motivates two quasi-experimental approaches, both of which suggest that on average gene patents have had no quantitatively important effect on follow-on innovation.
This paper studies the combined effect of affiliation with prestigious universities, underwriters, and venture capitalists on the valuation of biotech ventures at IPO and their post-IPO performance. We argue that affiliation to a prestigious university provides the affiliated firm with a quality signal in the scientific domain. The pure quality signaling effect of the affiliation is isolated from the substantive benefits it provides by performing a difference-in-difference approach based on the scientific reputation of scientists in firms' upper echelons. The signal is stronger the weaker is the scientific reputation of scientists of the focal IPO-firm and is additive to those provided by prestigious venture capitalists and underwriters. Results for a sample of 254 European biotech ventures that went through an IPO between 1990 and 2009 confirm our predictions.
Research on the use of trademarks by innovating companies is growing. Yet, large research gaps exist in our understanding of the use of trademarks beyond manufacturing and beyond specific service sectors. This study focuses on the creative and cultural industries (CCIs) and argues that these industries represent a salient case to advance research on trademarks. After reviewing the main characteristics of CCIs, a conceptual framework is developed to classify motives to trademark and motives not to trademark for firms in these industries. The paper offers original empirical evidence on the relevance of these motives from survey results on a sample of 486 European firms in five selected CCIs.
Results from principal component analysis are used to propose a taxonomy of firms with specific attitudes and strategies towards trademarking. All results are discussed in terms of their implications for using trademarks as the basis for novel economic indicators of product variety and innovation.
Entrepreneurship researchers have documented that early stage startups rely on signals to demonstrate the transitions in their identities that they must make when they cross organizational life cycle thresholds. However, early stage startups in emerging industry contexts tend to have few good signals upon which to rely. Public agencies can play a valuable role in this process, but prior research has not sufficiently examined how startups effectively leverage this support. In this paper, therefore, we develop a framework to investigate the role that signals can play for early stage startups when they win prestigious government research grants. We test this framework in the setting of the emerging U.S. clean energy sector and find that in comparison to a matched sample of clean energy startups that have not won prestigious research grants, startups with these grants were 12% more likely to acquire subsequent venture capital (VC) funding. Another significant result is that the value of this signaling is greater for startups that have fewer patents. The important contribution of this finding is that it shows that signaling has the potential to redistribute benefits rather than just provide an additional accrual of advantages to the already high status actors. Together these results highlight the advantages for startups in emerging industries of pursuing signaling strategies with public agencies when they attempt to make important transitions through the stages of their organizational life cycles.
Executive summary
Early stage startups seeking to acquire resources struggle to demonstrate the legitimacy they need to transition from conceptualization to commercialization. They must efficiently cross thresholds over the organizational life cycle to assure their survival and growth. Earlier work in entrepreneurship has demonstrated that the strategies startups use to cross these thresholds involve costly efforts to signal the quality of their ventures. In this paper, we study the value that signals have for startups in an emerging technology industry by examining the impact of government research grants on the recipients' ability to attract subsequent venture capital (VC) funding. Governments around the world are establishing larger pools of funds to catalyze innovative efforts and support early stage startups. This is especially the case in the area of clean technology where the proceeds of carbon taxes or cap-and-trade schemes are being directed towards promising technologies that lower greenhouse gas emissions. We show that the VC community picks up on the signals that underlie these types of government grants and startups can use these as proof points to demonstrate their potential to transition across life cycle stages. In comparison to a sample of U.S. based clean energy startups that have not won prestigious research grants, those startups that have been awarded these grants from federal agencies were 12% more likely to acquire subsequent venture capital (VC) funding. Interestingly, the effect is only present for the six months following receipt of a government grant and not for later windows. This suggests startups are likely to use these grants expeditiously in their advancing their relationships with VCs and that the cachet that comes from these awards may decay over time.
Significantly, these proof points appear to compensate for a weakness that startups otherwise may have. That is, we find that startups with fewer or even no patents are likely to benefit from additional VC funding in comparison to startups with more patents. The signal sent by the grant then has the important effect of redistributing the benefits of VC funding rather than to simply advantage already well-endowed actors with many patented technologies. The role that the government can play in tipping the balance in the direction of less well-endowed startup ventures is an intriguing finding that deserves follow up for it points to an alternative strategic route that startups can take to move through the organizational life cycle.
Our study makes several contributions. First, we identify a strategy that early stage startups adopt as they struggle to transit their identity from the conception to commercialization stages. We show how signals that startups establish through government research grants can distinguish them from non-grant recipient startups in a way that allows them to overcome information asymmetries and catalyze their efforts to establish ties with VCs. We further argue that for an early stage startup these grants have value beyond the monetary award if they can be used as an identity transforming event to avoid languishing in the well documented valley of death. Second, our focus on an emerging technology sector context shines light on how identity transitions differ based upon gradations in industry development. In this type of industry, the threshold external resource providers confront is more opaque and therefore it is greater than it is in mature industries, leading to wider identity transition gaps. Third, the dynamic aspect of the signaling strategy that we study about the early stage startups contributes to our understanding of when such firms extract value from signals. Finally, our findings offer interesting implications for policymakers responsible for designing research grant programs. We demonstrate that government grants have positive impacts on startups obtaining VC financing. Given the signaling value of grants, policymakers may consider involving VCs in the design of these programs.
We argue that social integration—in the sense of within-community interconnectedness—and venture capital have a complementary relationship in fostering innovation, entrepreneurship, and economic growth. Using panel data on metropolitan areas in the United States from 1993 to 2002, our analyses reveal that racial integration—in the microgeography of residential patterns—moderates the effect of venture capital, with more ethnically-integrated places benefiting more from venture capital. We provide evidence for the underlying mechanisms by demonstrating that communities with higher levels of racial integration foster the discovery of more novel and more valuable inventions and the emergence of more ethnically-diverse entrepreneurial groups.
We contribute to multinationality and real options theories by considering the role of firm heterogeneity in real options awareness for MNCs. We test the joint impact of real options awareness (RO-AWN) and multinationality on firm value using an extensive sample of U.S.-listed international firms over the ten-year period 1996–2005. We show that when a firm's growth options and degree of RO-AWN are considered, multinationality has a significant positive impact on firm value and performance as measured by Tobin's Q, return-on-assets and the 3-year average stock returns. We find that the benefits of multinationality accrue asymmetrically to firms differing in RO-AWN. Managers who are more aware of their corporate real options are able to significantly enhance firm value. Our findings are robust to a range of dataset and measurement specifications, endogeneity issues and controlling for alternative theories of the firm.
This paper examined the returns earned by subscribing to initial public offerings of equity (IPOs). suggests that IPO returns are required by uninformed investors as compensation for the risk of trading against superior information. We show that IPOs with more informed investor capital require higher returns. The marketing underwriter's reputation reveals the expected level of “informed” activity. Prestigious underwriters are associated with lower risk offerings. With less risk there is less incentive to acquire information and fewer informed investors. Consequently, prestigious underwriters are associated with IPOs that have lower returns. 1990 The American Finance Association
Over the last 20 years there has been a surge in national trademark applications in Europe. This increase in filings has been interpreted as a sign of increased innovative performance. In this paper, we argue that the explanation is much simpler. First, using a novel dataset, we document that trademark filing fees have been steadily decreasing and converging across countries in Europe. Second, using dynamic panel data econometrics, we find that national trademark filings are price-sensitive: a fee decrease by 10% increases filings at an office by about 10.5%. These estimates suggest that a substantial proportion of the rise in filing numbers can be explained by lower fees. We also document that trademark filings at national offices in Europe became more elastic after the mid-1990s. Arguably, this is because the European Community Trademark became available as an attractive alternative to national filings in 1996 and increased the price-sensitivity of applicants.
Previous literature provides multiple conflicting arguments on why and when multinationality should enhance or impede the value-relevance of firms' real options. We address this issue by examining whether the relationship between stock returns and changes in return volatility varies with multinationality. Our results indicate that multinationality does indeed act as a real option facilitator. Furthermore, we show that, consistent with the notion that there are limits to the operating flexibility associated with multinationality this benefit only accrues fully if the firm is not financially constrained and stabilizes at very high degrees of multinationality.
This study empirically evaluates the certification and value-added roles of reputable venture capitalists (VCs). Using a novel sample of entrepreneurial start-ups with multiple financing offers, I analyze financing offers made by competing VCs at the first professional round of start-up funding, holding characteristics of the start-up fixed. Offers made by VCs with a high reputation are three times more likely to be accepted, and high-reputation VCs acquire start-up equity at a 10-14% discount. The evidence suggests that VCs' ''extra-financial" value may be more distinctive than their functionally equivalent financial capital. These extra-financial services can have financial consequences.
Trademark filings have increased markedly over time. Although prior research has investigated the outcomes of trademark registration, including its effects on firm market valuation and productivity, little is known about why firms file trademarks. However, to interpret the increase in trademark filings and its economic effects, it is important to know and understand why firms file trademarks. Because trademarks are particularly important to small and medium-sized enterprises (SMEs), this study analyzes trademarking motives using a survey of 600 SMEs in innovative industries. An exploratory factor analysis yields three distinct motives: protection, marketing, and exchange. A cluster analysis reveals four distinct clusters of firms with respect to the three trademarking motives. A comparison of these clusters reveals significant differences in several industry- and firm-level characteristics, including participation in service industries and relationships with external parties. Implications for research on SMEs, trademarks, and intellectual property management are discussed.
Several new methods of measuring corporate diversification have been developed since Rumelt's (1974) seminal work. These methods use varying criteria but they have not been backed up by construct validity. The present study investigates the content, convergent, discriminant, unidimensionality, and predictive validity by comparing 54 Fortune 500 companies on Rumelt's classification (self-reported and calculated), entropy, Berry- Herfindahl index, and broad and mean narrow spectrum diversification measures. Results indicate only mild support for convergence, discriminant and predictive validity, and no evidence of unidimensionality amongst these measures. This raises problems in the measurement of diversification and subsequent relationships to performance linkages.
Firms spend considerable efforts to build brand awareness and associations among consumers. Yet there is a limited understanding of the financial returns of such investments. In this article, the authors present a framework that uses trademarks as measures of firms' branding efforts. They classify trademarks into two categories-brandidentification trademarks and brand-association trademarks - and propose that they are indicators of firm efforts to build brand awareness and associations among consumers, respectively. The authors then evaluate the chain of effects linking such assets with metrics of firms' financial value. A longitudinal analysis of data collected from secondary sources reveals that the stock (i.e., total number) of brand-association trademarks available to firms in time period t increases their cash flow, Tobin's q, return on assets, and stock returns and reduces their cash-flow variability in period t + 1. Furthermore, the authors observe that the stock of brand-identification trademarks owned by firms in period t - 1 influences the effects of brand-association trademarks on cash flow, Tobin's q, and stock returns. Together, these findings provide useful insights into the financial value of branding.
This paper surveys empirical studies employing trade mark data that exist in the economic literature to date. Section 1) documents the use of trade marks by firms in several advanced countries including Australia, the United Kingdom and the United States, 2) reviews different attempts to gauge the function of a trade mark as indicator of innovation and product differentiation, and 3) provides an overview of the association of trade marks with dimensions of firm performance and productivity. Sections 4) and 5) give accounts of studies that focus on the social costs and value of trade marks, namely their importance for firm survival, their impact on demand, and firms' incentives to innovate but also to raise rivals' costs. Section 6) covers first endeavours to investigate the interplay between different types of intellectual property rights, while 7) briefly concludes.
Only anecdotal evidence exists that ventures use patents as collateral to access debt financing. In this paper, we use a novel dataset on patent reassignments with a security interest to explore quantitatively what patents are used as collateral. We analyze characteristics of patents to disentangle whether it is the technology underlying a patent or the patent's exclusion right per se matters for collateralization. We do find empirical support only for technology-related characteristics, suggesting that lenders use patents to collateralize high-quality technology that can, in case of default, be redeployed to ventures in similar technology fields. On the other hand, patent-related characteristics like scope, which are, in general, related to patent value and are particularly important for non-practicing entities, do not matter.
We use a sample of 3,677 European IPOs during the period 1998-2012 to examine how the adoptions of corporate governance codes by Member States of the European Union (EU) have affected IPO underpricing on Member State-regulated markets, where issuers are subject to corporate governance rules instituted by Member States, relative to a control sample of IPOs on exchange-regulated markets, where issuers are exempt from Member State corporate governance codes. Using this control sample approach facilitated by the existence of second-tier, exchange-regulated markets in the EU, we find that, on average, IPO underpricing declined on Member State-regulated markets after Member States adopted corporate governance codes containing SOX-like provisions. We do not find a similar reduction in IPO underpricing on exchange-regulated markets. Our results are robust to alternative specifications, and our findings support the view that elevating corporate governance standards increases transparency and reduces information asymmetries that affect IPO valuations.
Valuing IPOs using multiples leaves discretion to underwriters in the selection of comparable firms. This paper documents that they systematically exclude candidate comparable firms that would make a given IPO look overvalued. On average, comparable firms published in official prospectuses have 13% to 38% higher valuation multiples than those obtained from matching algorithms or selected by sell-side analysts, including the same underwriter's analyst after the IPO. Even if IPOs are priced at a discount compared to the peers selected by the underwriters, they are still at a premium with regard to alternatively selected peers. Greater bias in the underwriter's selection of peers leads to poorer long-run performance.This article is protected by copyright. All rights reserved.