Quality signalling by entrepreneurial firms

Government innovation support programs are frequently justified on the premise that entrepreneurship drives job creation and economic growth. Yet most evaluations focus narrowly on funded firms, overlooking how program design may influence behaviour across the wider entrepreneurial ecosystem. This study examines the early behavioural effects of a government innovation grant program using a ten-year panel dataset constructed from multiple administrative sources. A treatment group of grant recipients and four control groups were created to represent different segments of the entrepreneurial population and mitigate selection bias. The results show that the program influenced both recipient firms and non-recipient firms within the broader market environment. While recipients exhibited expected treatment effects associated with capacity-building and certification, non-recipients displayed behavioural responses consistent with ecosystem-level signalling. These findings contribute to the long-standing “picking winners” debate by demonstrating how government innovation programs operate not only as resource-allocation mechanisms but also as institutional signals that shape entrepreneurial behaviour. The results highlight the importance of program design and selection criteria in generating both direct firm-level impacts and indirect ecosystem-wide effects.