Abstract

We use signaling theory to understand the ways in which angel investors interpret the information which new ventures present in order to communicate their suitability for funding. Signaling theory addresses problems of information asymmetry in markets (Spence, 1973; Certo, 2003). The signaler’s role is to intentionally convey (positive) information in an effort to suggest underlying (positive) organizational attributes. The receiver, in turn, must be in a position to receive and interpret the information sent by the signaler. We specify and test three hypotheses about the dyadic exchanges between the entrepreneurial venture (signaler) and the angel investor (receiver), as follows: (H1): The greater the number of positive signals that entrepreneurs send; (H2a): The higher the number of positive signals received by the angel investors; and (H2b): The lower the number of negative signals received by the angel investors; the greater the likelihood that the angel investors will continue their support for the new venture. In addition, (H3): The higher the consistency between the signals sent by the entrepreneur and received by the angel investor, the stronger the effect of positive received signals on the continued support by the angel investors.

Share

COinS