Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations

Signaling theorists have paid a great deal of attention to the costs of acquiring characteristics that can serve as signals, such as endorsements from reputable third parties. However limited attention has been devoted to the penalty costs associated with providing inaccurate signals and the factors...

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Main Authors: GOMULYA, David, JIN, Kyuho, LEE, Peggy M., POLLOCK, Timothy G.
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Language:English
Published: Institutional Knowledge at Singapore Management University 2019
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/5976
https://ink.library.smu.edu.sg/context/lkcsb_research/article/6975/viewcontent/crossedwires.pdf
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spelling sg-smu-ink.lkcsb_research-69752022-08-11T03:39:57Z Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations GOMULYA, David JIN, Kyuho LEE, Peggy M. POLLOCK, Timothy G. Signaling theorists have paid a great deal of attention to the costs of acquiring characteristics that can serve as signals, such as endorsements from reputable third parties. However limited attention has been devoted to the penalty costs associated with providing inaccurate signals and the factors that can exacerbate or attenuate the penalties. In this study, we examine the effect of negative feedback loops on venture capital firms’ reputations that result from the failures (delistings) of the newly-public firms they once endorsed. Drawing on signaling and attribution theories, we argue that endorsements by reputable VC firms create high expectations that, when violated, cause stakeholders to look for scapegoats, resulting in reputational damage to the endorsing VCs. We find empirical support for this argument, and for the attenuating effect of post-IPO market performance and the time since IPO. Our study contributes to the conversation about endorsements as signals, and empirically tests the implicit assumption that endorsements place the reputation of the endorser at risk. 2019-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/5976 info:doi/10.5465/amj.2016.0796 https://ink.library.smu.edu.sg/context/lkcsb_research/article/6975/viewcontent/crossedwires.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Corporate Finance Organizational Behavior and Theory Strategic Management Policy
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Corporate Finance
Organizational Behavior and Theory
Strategic Management Policy
spellingShingle Corporate Finance
Organizational Behavior and Theory
Strategic Management Policy
GOMULYA, David
JIN, Kyuho
LEE, Peggy M.
POLLOCK, Timothy G.
Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations
description Signaling theorists have paid a great deal of attention to the costs of acquiring characteristics that can serve as signals, such as endorsements from reputable third parties. However limited attention has been devoted to the penalty costs associated with providing inaccurate signals and the factors that can exacerbate or attenuate the penalties. In this study, we examine the effect of negative feedback loops on venture capital firms’ reputations that result from the failures (delistings) of the newly-public firms they once endorsed. Drawing on signaling and attribution theories, we argue that endorsements by reputable VC firms create high expectations that, when violated, cause stakeholders to look for scapegoats, resulting in reputational damage to the endorsing VCs. We find empirical support for this argument, and for the attenuating effect of post-IPO market performance and the time since IPO. Our study contributes to the conversation about endorsements as signals, and empirically tests the implicit assumption that endorsements place the reputation of the endorser at risk.
format text
author GOMULYA, David
JIN, Kyuho
LEE, Peggy M.
POLLOCK, Timothy G.
author_facet GOMULYA, David
JIN, Kyuho
LEE, Peggy M.
POLLOCK, Timothy G.
author_sort GOMULYA, David
title Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations
title_short Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations
title_full Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations
title_fullStr Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations
title_full_unstemmed Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations
title_sort crossed wires: endorsement signals and the effects of ipo firm delistings on venture capitalists’ reputations
publisher Institutional Knowledge at Singapore Management University
publishDate 2019
url https://ink.library.smu.edu.sg/lkcsb_research/5976
https://ink.library.smu.edu.sg/context/lkcsb_research/article/6975/viewcontent/crossedwires.pdf
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