Public Financing of Risky Early-Stage Technology

• Main Author: Galope, Reynold V
• Format: Others
• Published: Digital Archive @ GSU 2012
• Subjects: early-stage technology; public financing; high-tech start-up; policy evaluation; research and development (R&D); propensity score matching (PSM); Small Business Innovation Research (SBIR); innovation policy; Kauffman Firm Survey (KFS); counterfactual approach
• Online Access: http://digitalarchive.gsu.edu/pmap_diss/46; http://digitalarchive.gsu.edu/cgi/viewcontent.cgi?article=1045&context=pmap_diss

This dissertation examines the role of public investments in inducing small firms to develop risky, early-stage technologies. It contributes to expanding our understanding of the consequences of research, innovation, and entrepreneurship policies and programs by investigating in more depth the effect of the Small Business Innovation Research (SBIR) program on the innovation effort, ability to attract external capital, and other metrics of post-entry performance of small business start-ups using a new sample and estimation approach. This study integrated the Kauffman Firm Survey from the Ewing Marion Kauffman Foundation with the SBIR recipient dataset from the U.S. Small Business Administration and used advances in the micro-econometrics of program evaluation to empirically construct the counterfactual outcomes of SBIR recipients. We found empirical evidence of the input additionality effect of the SBIR program. The treatment effects analyses also found a significant positive effect of SBIR on innovation propensity and employment. However, it appears that public co-financing of commercial R&D has crowded-out privately financed R&D of small business start-ups in the United States. A dollar of SBIR subsidy decreased firm-financed R&D by about $0.16. Contrary to prior SBIR studies, we did not find any significant “halo effect” or “certification effect” of receiving an SBIR award on attracting external capital. What we discovered is a different certification effect of the SBIR program: SBIR grantees are more likely to attract external patents. This finding confirms that innovation requires a portfolio of internal and external knowledge assets as theorized by David Teece and his colleagues.