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

Abstract

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.

Strategy as language and communication: Theoretical and methodological advances and avenues for the future in strategy process and practice research

“…This is especially the case with topics such as pitches or narratives (Gafni, Maron, & Sade, 2019) and the use of the media (Howard, Kolb, & Sy, 2021) in and around new ventures. It would also be interesting to dig deeper into the use of rhetoric in the valuation of companies (Wang, Malik, & Wales, 2021). Furthermore, a closer focus on discourse could significantly contribute to our understanding of how global strategies emerge and develop (Treviño & Doh, 2020) or how the use of language is an inherent part of making sense of new cultures (Welch & Welch, 2019).…”

The impact of environmental disclosure on initial public offering underpricing: Sustainable development in Singapore

“…Our findings validate the importance of considering signal reliability in applications of signaling theory (Connelly et al, 2011; Mrkajic et al, 2017; Park & Patel, 2015) as failing to do so may lead to erroneous conclusions regarding the efficacy of signals. While some scholars have highlighted the importance of signal reliability over time (Wang et al, 2021), we show that the linguistic features of corporate disclosures at a point in time can also shape investors' assessments on the reliability of positive signals, thus contributing to our understanding of the communicational processes in environmental disclosures from a signaling theory perspective (Seele & Gatti, 2017).…”

“…While some scholars have highlighted the importance of signal reliability over time (Wang et al, 2021), we show that the linguistic features of corporate disclosures at a point in time can also shape investors' assessments on the reliability of positive signals, thus contributing to our understanding of the communicational processes in environmental disclosures from a signaling theory perspective (Seele & Gatti, 2017).…”

Reflexos da orientação empreendedora no desempenho das cooperativas de crédito do mercado brasileiro

“…A orientação empreendedora (OE) está contextualizada no âmbito do empreendedorismo ao nível organizacional, no que se refere a comportamentos dos gestores e como estes são repassados para a organização em questão (Covin & Slevin, 1991;Miller, 1983;2011). A OE procura facilitar a adaptação no ambiente, de forma a atuar positivamente na relação com o desempenho e auxiliar na descoberta de potenciais oportunidades, na diferenciação e na criação de vantagem competitiva (Covin & Wales, 2019;Lumpkin & Dess, 1996;McKenny et al, 2018;Miller, 1983;Wang et al, 2021).…”

“…A investigação contribui para a compreensão da OE e suas relações com o desempenho das cooperativas de crédito em âmbito nacional, de maneira a acrescentar a dimensão de rede de relações, a qual até então não fora encontrada em estudos correlatos com esse público. Ademais, corrobora a literatura de OE, que se encontra em pleno desenvolvimento (Covin & Lumpkin, 2011;Covin & Wales, 2019;Martens et al, 2016;Silveira & Silveira-Martins, 2016;Wales, 2016;Wang et al, 2021).…”