In order to determine if the ATP award has the hypothesized halo effect and how much it might be worth in additional funds, we took into account other factors related to winning an ATP award that may also influence other investors. 28 These include the firm's prior success in raising funds, the size of the firm, and the maximum rating by the ATP reviewers. The reviewers' ratings serve as a measure of the technical quality and promise of a project and of the business and economic potential of the technology. We are interested in determining the influence of the ATP award as a pure signal to the investment community, and our statistical analyses confirm our hypothesis. After we have controlled for these other factors, we still find a significant halo effect from an ATP award. 29 Award winners who seek additional funding from non-ATP sources were more successful than non-winners and received a larger amount of funding.
Our analysis concludes that winning an ATP award significantly increases the firm's success in attracting additional funds from other sources for R&D activities. Our findings provide strong evidence that the ATP award confers a halo effect on winners that makes them more likely to attract other funding when compared to non-winners of the same size, and age with project of similar business and technical quality. Thus, our results confirm that the ATP award appears to send a market signal that certifies that the firm and the technology are promising.
Growth theorists describe two roles for government R&D policy. 30 The first role is in funding the supply of R&D. Most research to date has focused on this topic. The second role for government is providing incentives for private sector R&D and generating a set of behavioral responses that would be expected to stimulate R&D and promote innovation and economic growth. We know the most about the supply of R&D resources. Less is known about the ways in which government programs provide incentives for activities that generate innovation and economic growth.
In this paper, we have shown how a government program is leveraging private sector R&D activities by selecting projects with greater potential for diffus
28 We used a TOBIT model to estimate the total amount of funding a firm succeeded in raising from a number of different sources. The TOBIT model accommodates the truncated nature of the dependent variable that has a lower bound of zero. See Feldman and Kelley, “The Case for Government R&D Additionally,” for details.
29 Not surprising, we find that prior success in raising funds matters. The greater the amount of funding a firm was able to raise in the past, the more success it will have in obtaining additional funding. We also find that smaller firms were more successful in raising additional funds.
30 Boyan Jovanovic, “Growth Theory,” NBER Working Paper no. 7468, 2000.