Do Investor Capabilities Influence the Interpretation of Entrepreneur Signals? Theory and Testing in the Private Equity Setting

dc.contributor.advisorKirsch, David Aen_US
dc.contributor.advisorGoldfarb, Brenten_US
dc.contributor.authorGera, Azien_US
dc.contributor.departmentBusiness and Management: Management & Organizationen_US
dc.contributor.publisherDigital Repository at the University of Marylanden_US
dc.contributor.publisherUniversity of Maryland (College Park, Md.)en_US
dc.date.accessioned2009-10-06T06:29:13Z
dc.date.available2009-10-06T06:29:13Z
dc.date.issued2009en_US
dc.description.abstractInforming outsiders of the potential and quality of the organization in a way that will benefit the organization and avoid putting it at risk is a challenging task in competitive settings. Under conditions of uncertainty, in which external entities are imperfectly informed about the organization, outsiders will seek for alternative signals of quality. Current research of interfirm signaling has focused on the sender's ability to generate signals. In this dissertation, I propose that receivers of signals are heterogeneous in their ability to interpret signals and that this heterogeneity significantly influences the outcome of the interaction between signaler and interpreter. I apply this insight in an entrepreneurial setting to explain differences in signaling to venture capitalist and informal private equity investors (business angels) over the early stages of a firm's lifecycle. The findings have strong implications for entrepreneurial firms' strategy and, generally, to signaling theory. I argue that signals are multifaceted. Outsiders may base their decisions on two aspects of signal: the informative aspect, which relays direct information on the capabilities of the organization; and, the legitimizing aspect, which conveys legitimacy through actions of third-party entities. The use of each aspect is determined by the abilities of the sender to generate the signal and the receiver to interpret it. I posit that the informative aspect of the signal will be prominent when both the sender's and the receiver's abilities are high. When either the sender's ability to generate a signal, or the receiver's ability to interpret it, is limited, the legitimizing aspect of the signal will be prominent. When both the sender and the receiver possess low signaling abilities, the interpretation will be based on idiosyncratic data. This dissertation explores the differences between these two facets of signals, the relationships between the signal aspects at different stages of the organizational life cycle, and the usefulness of each signal aspect when considering the organization's target audience. The first essay explains the purpose of the two signal aspects for stakeholders and the interactive nature of the signals' facets. The two following essays test the theory by utilizing two large datasets of private equity investment solicitations. The second essay evaluates the effectiveness of the legitimizing aspect of the signal as a mechanism for screening startups' funding solicitations. The third essay compares the informative and legitimizing aspects of signals as decision making mechanisms for both angel and venture capital investors.en_US
dc.format.extent480908 bytes
dc.format.mimetypeapplication/pdf
dc.identifier.urihttp://hdl.handle.net/1903/9617
dc.language.isoen_US
dc.subject.pqcontrolledBusiness Administration, Managementen_US
dc.subject.pquncontrolledAttention-Based Viewen_US
dc.subject.pquncontrolledBusiness Angelsen_US
dc.subject.pquncontrolledEntrpereneurshipen_US
dc.subject.pquncontrolledSignaling theoryen_US
dc.subject.pquncontrolledSocial Referralsen_US
dc.subject.pquncontrolledVenture Capitalen_US
dc.titleDo Investor Capabilities Influence the Interpretation of Entrepreneur Signals? Theory and Testing in the Private Equity Settingen_US
dc.typeDissertationen_US

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