INNOVATION, CORPORATE GOVERNANCE AND FINANCING PROCESSES OF YOUNG FIRMS IN EMERGING AND DEVELOPED ECONOMIES

Zafrin Rahman

This three-essay dissertation investigates how various entrepreneurial processes and strategies (e.g. corporate governance and frugal innovation) can affect various resource acquisition methods (IPOs, outside equity financing, bricolage). The context used is firms in both emerging and developed economies. The first essay reflects on how weak governance structures can have an impact on young firm performance by presenting a framework of IPO valuation in the emerging markets by building on agency, institutional, and signaling theories. The study finds that outsider owners have a positive impact on IPO firm valuation given that institutional weaknesses in these economies make it difficult to enforce agency contracts. I also find that blockholder ownership has an inverted U-shaped relationship with IPO valuation while there is no positive signaling effect that comes from top management team legitimacy. The second essay looks at how frugal innovation impacts young firm performance while also establishing a link between frugal innovation and entrepreneurial bricolage. In order to have frugal innovation, a firm must be flexible and willing to improvise and bricolage allows new firms to do just that. I find that frugal innovation is beneficial for firm performance under a contingency framework whereby factors such as process innovation and network ties provide positive moderating effects on the main relationship. The third essay looks at how frugal innovation impacts outside equity financing. This paper proves that the dichotomy between pursuing innovation and receiving external funding to support such activities can be alleviated through frugal innovation. Due to their newness, information asymmetries about young firms exist so equity investors will require a higher rate of return on the capital invested. Frugal practices will enable the young firm to find ways to “make do with less” and thereby conserve resources. Thus, a potential outside equity investor is able to see the benefits of frugal innovation on their returns and will be more likely to invest in the new venture. In addition, this study investigates the moderating effect of various positive signals of quality of the new venture such as entrepreneur’s education, commitment and debt financing.

INNOVATION, CORPORATE GOVERNANCE AND FINANCING PROCESSES OF YOUNG FIRMS IN EMERGING AND DEVELOPED ECONOMIES

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