The Entrepreneurial Society
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The Entrepreneurial Society

How to Fill the Gap Between Knowledge and Innovation

Edited by Jean Bonnet, Domingo García Pérez De Lima and Howard Van Auken

This timely book analyzes the emergence of new firms in a broad context where economics, management and sociological approaches are joined. The market benefits of an entrepreneurial economy are evident in the new technology that has been made available to consumers over the past ten to twenty years. Entrepreneurial firms provide the market with innovations that create new products and, in turn, generate new employment and tax revenue, thus playing a critical role in surviving the economic crisis. The book explores diverse conditions that explain, permit and support entrepreneurship, allowing thinking outside the box and enhancing breakthrough innovations. At a time when new challenges are appearing regarding the ecological footprint, this is crucial.
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Chapter 4: Role of Information in the Debt Financing of Technology-based Firms in Spain

Ginés Hernández-Cánovas, Antonia Madrid-Guijarro and Howard Van Auken


Ginés Hernández-Cánovas, Antonia Madrid-Guijarro and Howard Van Auken 4.1 INTRODUCTION Capital structure theory states that owners should select a financing mix that minimizes the firm’s overall cost of capital by identifying the optimal levels of equity and debt capital. While appropriate for firms having great access to the capital markets, the capital acquisition by technology-based firms may not be consistent with wealth maximization due to numerous market-related constraints (Ang, 1992; Petty and Bygrave, 1993). Issues such as high risk, unproven markets, motivation of owners, lead-time on product development, limited asset base, intellectual property rights and limited experience with raising capital by the owners often present important constraints on the ability of technologybased firms to raise capital. As a consequence, these firms are often faced with a limited set of choices that may limit their ability to achieve a minimum cost of capital. The above problems would be mitigated assuming a free flow of information between users and providers of capital (Brigham and Ehrhardt, 2007). However, obstacles confronting technology-based firms in their search for capital have been attributed to high agency costs that result from asymmetric information between the firm and investors (Carter and Van Auken, 1992; Landstrom, 1992). In this environment banks have an informational advantage over other providers of capital because they make higher investments in screening and monitoring technologies to reduce informational asymmetries. Since technological-based firms lack reliable quantitative information, much of banks’ competitive advantage comes from their ability to gather soft or qualitative information...

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