Publicly Funded Prestart Support for New Firms: Who Demands it and How it Affects Their Employment Growth

Abstract

We examine prestart determinants of the demand for publicly funded external support to new ventures. We also investigate the effects of different types of such support on subsequent firm growth. Adopting resource-based and information asymmetry approaches, we argue that the entrepreneurs who ask for publicly funded prestart support are more likely to face information asymmetries with regard to resource providers, which in turn depend on their level of human and social capital. We also suggest that intangible support oriented towards knowledge generation would be the most beneficial. A series of two-stage treatment effects models applied to a representative sample of new firms in Navarra (Spain) offer considerable support to our predictions. Implications for research and policy are discussed.