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How much prestige is enough? Assessing the value of multiple types of high-status affiliates for young firms

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  • Pollock, Timothy G.
  • Chen, Guoli
  • Jackson, Eric M.
  • Hambrick, Donald C.

Abstract

Young, unproven firms can signal their worthiness, or potential, through affiliations with various types of prestigious parties. Drawing from signaling theory, we present a formal consideration of the implications of multiple numbers and types of prestigious affiliates for IPO valuations. We 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, we 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. We discuss the theoretical implications of these findings and propose an agenda for future research.

Suggested Citation

  • Pollock, Timothy G. & Chen, Guoli & Jackson, Eric M. & Hambrick, Donald C., 2010. "How much prestige is enough? Assessing the value of multiple types of high-status affiliates for young firms," Journal of Business Venturing, Elsevier, vol. 25(1), pages 6-23, January.
    • Handle: RePEc:eee:jbvent:v:25:y:2010:i:1:p:6-23
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