Publication Type

Journal Article

Version

publishedVersion

Publication Date

6-2019

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. In this study, we examine the effect of negative feedback loops on venture capital 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 post-IPO market performance and the time since IPO. 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.

Discipline

Corporate Finance | Organizational Behavior and Theory | Strategic Management Policy

Research Areas

Strategy and Organisation

Publication

Academy of Management Journal

Volume

62

Issue

3

First Page

641

Last Page

666

ISSN

0001-4273

Identifier

10.5465/amj.2016.0796

Publisher

Academy of Management

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.5465/amj.2016.0796

Download

Share

COinS