How much prestige is enough? Assessing the value of multiple types of high-status affiliates for young firms |
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Authors: | Timothy G Pollock Guoli Chen Eric M Jackson Donald C Hambrick |
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Institution: | 1. The Pennsylvania State University, Business Building, University Park, PA 16802, United States;2. INSEAD, 1 Ayer Rajah Ave, 138676, Singapore;3. Managing Member, Ironfire Capital LLC, United States |
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Abstract: | Young, unproven firms can signal their worthiness, or potential, through affiliations with various types of prestigious parties. Drawing from signaling theory, we present a formal consideration of the implications of multiple numbers and types of prestigious affiliates for IPO valuations. We argue that different types of prestigious affiliates – prestigious executives, directors, venture capital firms, and underwriters – convey different signals of IPO worth, depending on the extent to which they provide certification or substantive benefits. Based on a sample of 257 software IPOs, we find considerable support for our expectations. The benefits of prestigious executives and directors accumulate in a linear, more is better fashion; in contrast, the payoffs from VC and underwriter prestige accumulate in a curvilinear fashion. We discuss the theoretical implications of these findings and propose an agenda for future research. |
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Keywords: | Initial Public Offerings Prestige Status Underwriters Venture Capitalists Signaling Top Management Teams Upper Echelons |
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