Abstract

The information gap between the founders of a high-tech start-up and external investors is likely to be extraordinarily large. As a consequence, these firms face significant challenges gaining the attention of potential investors and, to some extent, the matter is conveying the right signals to potential financiers the quality of the firm. Such signaling challenge reaches its peak with the decision to go public, that assures financial means, but involves the convincement of the investment community that the firm has a long-term potential. Scholars have identified a variety of internal and external signals of firm quality as a means to reduce uncertainties when valuing these new issues. In particular, researchers have documented the role of third-party endorsements as certification mechanisms. In this paper, we investigate the effect on the valuation of IPOs of three kinds of affiliation, namely prestigious underwriters, venture capitalists, and university.

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