What determines the success of startups?

By Rania Nasrallah-Massaad

Harshit Rajaiya, an assistant professor of finance, is our newest faculty member. He completed his PhD at Boston College. We interviewed him to learn more about his research on entrepreneurial finance.

Why did you choose to study finance? 

I enjoy thinking about problems, whether mathematical or real-world problems. There was a boom in startup firms in India around the time I graduated from college. While some of the startups succeeded, many failed. I was especially curious about the factors determining investments in startups and their eventual success or failure. My finance PhD program equipped me with the theoretical understanding of the actions of individuals, e.g., entrepreneurs or investors, and the empirical tools to pursue my research endeavours.

Can you discuss a recent publication that you are particularly excited about? 

My recent study examines the impact of employee ratings on a public firm’s external financing and investment policies. The explosive growth of the internet has led to a spike in information produced by non-traditional sources, e.g., non-executive employees or consumers. My study analyzed the role of Glassdoor ratings — anonymous online reviews by employees — on a firm’s decision to issue equity versus debt to raise external financing and on the stock market’s reaction to those equity issues. While Glassdoor ratings may not convey “hard information” like financial ratios, they convey relevant “soft information,” e.g., work culture, which affects a firm’s financing and investment decisions.

How can your research influence business communities in Canada? 

My research focusses on the external financing decisions of public firms, the role of intellectual properties in success of startup firms and the role played by venture capitalists and angel investors in startup ecosystems. My work suggests that intellectual properties like patents and trademarks may not only benefit Canadian startups to raise external financing and enable their future success but will also help Canadian public firms enhance their access to the equity market. Further, better online employee ratings may help Canadian public firms raise equity financing for their valuable projects. Lastly, investors (retail or institutional) must pay attention to a firm’s intellectual properties and online reviews before executing their stock market decisions.