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

David Gomulya, Kyuho Jin, Peggy M. Lee, Timothy Grant 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
Endorsements
Venture capitalists
Delisting
Penalty
Venture capital firms
Signaling theory
Factors
Negative feedback
Attribution theory
Public firm
Damage
Stakeholders
Market performance
Firm reputation
Limited attention

All Science Journal Classification (ASJC) codes

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

Cite this

Gomulya, David ; Jin, Kyuho ; Lee, Peggy M. ; Pollock, Timothy Grant. / Crossed wires : Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations. In: Academy of Management Journal. 2019 ; Vol. 62, No. 3. pp. 641-666.
@article{9ebd9914d8e44aff85f0ac622d4613a9,
title = "Crossed wires: Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations",
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.",
author = "David Gomulya and Kyuho Jin and Lee, {Peggy M.} and Pollock, {Timothy Grant}",
year = "2019",
month = "1",
day = "1",
doi = "10.5465/amj.2016.0796",
language = "English (US)",
volume = "62",
pages = "641--666",
journal = "Academy of Management Journal",
issn = "0001-4273",
publisher = "Academy of Management",
number = "3",

}

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

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

Research output: Contribution to journalArticle

TY - JOUR

T1 - Crossed wires

T2 - Endorsement signals and the effects of IPO firm delistings on venture capitalists’ reputations

AU - Gomulya, David

AU - Jin, Kyuho

AU - Lee, Peggy M.

AU - Pollock, Timothy Grant

PY - 2019/1/1

Y1 - 2019/1/1

N2 - 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.

AB - 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.

UR - http://www.scopus.com/inward/record.url?scp=85069821826&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85069821826&partnerID=8YFLogxK

U2 - 10.5465/amj.2016.0796

DO - 10.5465/amj.2016.0796

M3 - Article

AN - SCOPUS:85069821826

VL - 62

SP - 641

EP - 666

JO - Academy of Management Journal

JF - Academy of Management Journal

SN - 0001-4273

IS - 3

ER -