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SSRN
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Taking Care: How Concerns about Prior Knowledge Affect the Financing of Novel Projects

SSRN Electronic Journal
2003
  • 1
    Citations
  • 6,700
    Usage
  • 3
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    1
    • Citation Indexes
      1
  • Usage
    6,700
    • Abstract Views
      6,073
    • Downloads
      627
  • Captures
    3
  • Ratings
    • Download Rank
      85,790

Article Description

Agents may propose bad projects because they unwittingly rely on defective prior knowledge. Concern about these honest mistakes encourages principals to examine track records of the agents' use of the same prior knowledge. But, such track records cannot exist for novel projects (or routine projects proposed under novel circumstances). Therefore agents may fail to obtain outside financing. This argument helps explain why highly novel ventures that are initially self-financed can subsequently attract outside financing without any decrease in standard 'incentive' or moral hazard problems. It also provides new insights about the differences in the novelty and other attributes of projects financed by individual 'angel' investors, venture capital partnerships and large public companies.

Bibliographic Details

Amar V. Bhide

Elsevier BV

Error control; Governance; Joint action; Organizational structure; Innovation

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