Does More Certification Always Benefit a Venture?

Abstract

An implicit assumption in institutional theory is that more certifications improve a venture’s likelihood for success. However, under certain conditions, we argue more certifications may be detrimental to the venture’s performance. We advance this notion by examining both who is doing the certification and, in turn, what information is revealed to others through the certification. Our study advances two new constructs based on varying instances of follow-on certification: certification broadening, where the initial and follow-on certifiers are different institutions, and certification redundancy, where the initial and follow-on certifiers are the same institution. By studying sequences of certification in the U.S. Small Business Innovation Research federal and state programs, we find that certification broadening generally increases a firm’s ability to acquire private resources, whereas certification redundancy generally decreases a firm’s ability to acquire private resources. This study advances a more dynamic view of certification within institutional theory—namely, when we disaggregate sequences of certifications, we are able to better ascertain when certification helps a venture and when it does not. The online appendices are available at https://doi.org/10.1287/orsc.2018.1211 .

State governments as financiers of technology startups: Evidence from Michigan's R&D loan program

“…In this scenario, the subsidies could transform a project from negative to positive net present value in expectation and potentially stimulate funding from private sources in later stages of the development life cycle. For competition-based programs, the information gap could be narrowed further if award receipt sends a credible signal that helps "certify" the quality of the project or firm to other resource providers (Lerner, 1999;Feldman and Kelley, 2003;Lanahan and Armanios, 2018). Finally, public R&D programs could improve the performance of entrepreneurial firms in ways that span beyond the monetary value of the award.…”

“…31 This "non-finding" could be an artifact of our sample, which includes young companies in several sectors (e.g., security software) that do not traditionally rely on patents to profit from their investments (e.g., see Graham et al, 2009). State-level R&D programs could also support commercialization-related tasks (e.g., the building of testing or pilot manufacturing facilities or the ramping up of clinical trials required for product launch) less likely to shift inventive output than R&D grants administered at the national level (Lanahan and Armanios, 2018). An alternative possibility, which we are unable to rule out, is that the need to repay the loan could redirect attention to shorter-term tasks likely to generate cash flow.…”

“…We offer a complementary firm-level view and contribute the first systematic evidence from a state-level R&D loan program. In doing so, we add to a small but growing strand of research on state and local innovation policies in the United States and their effects on entrepreneurial activity (Feldman et al, 2005;Safford 2009;Moretti and Wilson, 2017;Lanahan and Feldman, 2018;Lanahan and Armanios, 2018).…”

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