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

Article history: Received 5 July 2008 Received in revised form 14 January 2009 Accepted 15 January 2009 Available online xxxx 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. © 2009 Elsevier Inc. All rights reserved.