Crossed wires

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

David Gomulya, Kyuho Jin, Peggy Lee, Timothy G. Pollock

Research output: Contribution to journalArticle

Abstract

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. We examine the effect of negative feedback loops on venture capital (VC) 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 both post-IPO market performance and survival. 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.

Original languageEnglish (US)
Pages (from-to)641-666
Number of pages26
JournalAcademy of Management Journal
Volume62
Issue number3
DOIs
StatePublished - Jan 1 2019

Fingerprint

Wire
Costs
Feedback
Delisting
Endorsements
Venture capitalists
Venture capital firms
Penalty
Signaling theory
Public firm
Factors
Damage
Firm reputation
Attribution theory
Market performance
Stakeholders
Negative feedback
Limited attention

ASJC Scopus subject areas

  • Business and International Management
  • Business, Management and Accounting(all)
  • Strategy and Management
  • Management of Technology and Innovation

Cite this

Crossed wires : Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations. / Gomulya, David; Jin, Kyuho; Lee, Peggy; Pollock, Timothy G.

In: Academy of Management Journal, Vol. 62, No. 3, 01.01.2019, p. 641-666.

Research output: Contribution to journalArticle

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