Technology Adoption with Exit in Imperfectly Informed Equity Markets
- (pp. 925-57)
Abstract
This paper focuses on the importance of equity markets in facilitating the exit of entrepreneurs investing in technology. Entrepreneurs' willingness to invest and aggregate output is affected in two opposite ways. First, uncertainty about equity price or lack of market liquidity discourages technology adoption. This can explain slow technology adoption and limited participation by venture capitalists in underdeveloped equity markets. Second, fast adoption is a positive signal to imperfectly informed equity market participants. This provides a rational explanation for overpricing technology stocks and overinvestment in developed markets. Fast adoption is most probable at an intermediate quality of information. (JEL D82, E23, G12, G31, G32, O33)Citation
Tinn, Katrin. 2010. "Technology Adoption with Exit in Imperfectly Informed Equity Markets." American Economic Review, 100 (3): 925-57. DOI: 10.1257/aer.100.3.925JEL Classification
- D82 Asymmetric and Private Information
- E23 Macroeconomics: Production
- G12 Asset Pricing; Trading volume; Bond Interest Rates
- G31 Capital Budgeting; Fixed Investment and Inventory Studies
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
- O33 Technological Change: Choices and Consequences; Diffusion Processes