How do technology ventures signal IPO quality? A configurational approach

Wang, Taiyuan; Qureshi, Israr; Deeds, David; Ren, Yi

doi:10.1016/j.jbusres.2019.01.039

Cited by 17 publications

(14 citation statements)

References 64 publications

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“…IPO firms taken public on the KOSDAQ are typically young and focus on technological development and innovation. These companies are likely to have greater information asymmetry than well-established firms because they lack credible operating performance; furthermore, the knowledge and the technologies developed by such firms are often difficult for external stakeholders to understand [2]. In addition, the greater information asymmetry makes it difficult for outsiders to assess whether managers will act in the best interest of the shareholders after the IPO.…”

Section: Testable Hypothesesmentioning

confidence: 99%

“…Private companies raise a large amount of capital when they first offer their shares to the public in an initial public offering (IPO) [1]. IPOs are critical for the sustained growth of small and venture enterprises, which need capital for their projects until the firms generate stable revenue and income [2]. The IPO markets involve various stakeholders, including shareholders and employees of issuers, outside investors, financial intermediaries, media, and the government.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Corporate Governance Mechanisms on the Commitment of Managers in an IPO Setting: Evidence from Korean Small and Venture Firms

Lee

2022

Sustainability

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Managers’ commitment and dedication crucially affect the sustainable growth of firms. When private companies first offer their shares to the public in an initial public offering (IPO), an IPO lockup is one way of revealing managers’ commitments. IPO lockups are agreements that promise not to sell the shares retained by pre-IPO shareholders for a specified period in the market after the IPO. This paper investigates the impact of corporate governance mechanisms on the length of the lockup period. The paper’s sample consists of IPO firms that have gone public in Korea’s KOSDAQ market, which is a listing venue for small and venture companies. The major findings of this paper are as follows: first, the length of the lockup period increases with the number of outside directors and, second, IPO firms with audit committees have longer lockup periods than those without them. These results indicate that managers of firms with greater board independence choose a longer lockup period when going public. This paper also finds that the lockup period is positively related to the presence of venture capitalists serving as directors of IPO firms, which suggests that venture capital directors may ensure that managers have longer lockups. Overall, these findings suggest that, when small and venture companies go public, managers may use the IPO lockup as a commitment device that complements corporate governance mechanisms in reducing investor concern about the moral hazard problem of managers.

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Section: Testable Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Impact of Corporate Governance Mechanisms on the Commitment of Managers in an IPO Setting: Evidence from Korean Small and Venture Firms

Lee

2022

Sustainability

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“…Investors valuing a health science firm are unlikely to rely on a single signal but tend to derive important implications from the combination and configuration of different signals (Wang, Qureshi, Deeds, & Ren, 2019). Therefore, complementary hard‐information signals, which involve signaling costs (e.g., irreversible investments) or penalty costs (e.g., reputation losses), should temper investors' speculation toward changes in EO rhetoric.…”

Section: Eo Rhetoric Over Time and Health Science Firm Valuationmentioning

confidence: 99%

“…For a signal to be credible, a high‐quality signaler often needs to bear higher penalty costs for false signaling than a low‐quality signaler (Bergh et al, 2014). Losses in reputation and trustworthiness (Bergh et al, 2014; Certo, Daily, & Dalton, 2001) can cost a firm its legitimacy (O'Riordan & Fairbrass, 2014; Wang et al, 2019). Because firms with a high level of CSR tend to have a more valuable reputation and trustworthiness than those with a low level of CSR (Flammer, 2018; Vanhamme & Grobben, 2009), the former have more to lose through false signaling—they would pay a higher penalty cost.…”

Section: Eo Rhetoric Over Time and Health Science Firm Valuationmentioning

confidence: 99%

When entrepreneurial rhetoric meets strict regulations: Implications for the valuation of health science firms

Wang

Malik

Wales

2021

Strategic Entrepreneurship

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Research Summary Health science firms have long product development horizons and need regulatory approval for market entry. In communicating with investors, they may use entrepreneurial orientation (EO) rhetoric to emphasize their strategic and behavioral commitment to product innovation and market entry. However, because EO rhetoric constitutes a soft‐information signal rather than evidence of substantive commitment, investors may suspect firm insiders using such rhetoric of impression management. The solution, we argue, is EO rhetoric sustained over time, which produces more reliable information for investors—in contrast to occasional increases in EO rhetoric, which invite skeptical scrutiny. Nevertheless, investors' potential concerns regarding changes in EO rhetoric can be mitigated by concurrent hard‐information signals that carry signaling costs or penalty costs for false signaling. Managerial Summary Entrepreneurial orientation (EO) rhetoric can reduce information asymmetry between managers and investors. In strictly regulated contexts such as health science industries, using such rhetoric may be challenging. For firms embracing entrepreneurial strategies and behaviors, maintaining EO rhetoric over time is critical to overcoming skepticism that it is merely “cheap talk.” For investors, this study also suggests that health science firms maintaining higher EO rhetoric over time deserve higher valuations, given the variety of benefits an EO can have for health science firms. If a health science firm aims to ramp up its EO rhetoric, managers should be aware that investors may interpret the increase as impression management and should confront this interpretation head‐on—for instance, by simultaneously increasing entry commitment or corporate social responsibility.

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“…One key reason for these challenges is that new ventures often face an information asymmetry problem caused by the lack of a credible operational track record (Fisher et al, 2016;Wang et al, 2019). In the absence of information regarding a venture's quality, entrepreneurial signaling information management have been identified as a key mechanism that enables new ventures to communicate their unobservable quality and potential value to investors, enabling them to secure private equity funding (e.g., Certo, 2003;Plummer et al, 2016).…”

Section: Introductionmentioning

confidence: 99%

Signaling Information Management in Entrepreneurial Firms' Financing Acquisition

Zheng

Bai

Cross

2021

Journal of Global Information Management

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Research has identified the significant effect of new ventures’ signaling information management on their ability to secure private equity financing. This study adopts an integrated signaling and screening perspective to investigate investors’ differing perceptions of signals from ventures, across early financing stages. It proposes a three-step interpretation process. Based on an inductive multiple case study of signaler‒receiver dyads, it finds that to reach a financing decision, angel investors extract a characteristic signal as the fundamental type, orchestrate an acting signal as a supplementary type, and scrutinize the consistency between both. However, venture capital investors extract an action signal as the fundamental type, orchestrate characteristic and endorsement signals as complementary types, and scrutinize the consistency among all three types.

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How do technology ventures signal IPO quality? A configurational approach

Cited by 17 publications

References 64 publications

The Impact of Corporate Governance Mechanisms on the Commitment of Managers in an IPO Setting: Evidence from Korean Small and Venture Firms

The Impact of Corporate Governance Mechanisms on the Commitment of Managers in an IPO Setting: Evidence from Korean Small and Venture Firms

When entrepreneurial rhetoric meets strict regulations: Implications for the valuation of health science firms

Signaling Information Management in Entrepreneurial Firms' Financing Acquisition

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