Publications

Journal Article

Young, unproven firms can signal their worthiness, or potential, through affiliations with various types of prestigious parties.

Drawing from signalling theory, the authors present a formal consideration of the implications of multiple numbers and types of prestigious affiliates for IPO valuations.

The authors 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, the authors 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.

The authors discuss the theoretical implications of these findings and propose an agenda for future research.