Focusing on a firm's signaling of social capital through their alliances, we explore how socially constructed signals convey legitimacy and enable greater initial public offering (IPO) proceeds. We examine the concepts of absolute and relative social capital signals with a sample of 266 biotechnology IPOs from 1980 through 2006. Leveraging a dynamic framework, we uncover that the interpretations of quality signals vary over time and are nonadditive; rather, affiliating with prestigious underwriters limits the positive reward of signaling alliance–based social capital. These relationships vary according to whether social capital is evaluated relative to the industry norms and according to the alliance's vertical position.
BarretoI. & Baden–FullerC. (2006). To conform or to perform? Mimetic behaviour, legitimacy–based groups and performance consequences. Journal of Management Studies, 43, 1559–1581.
4.
BaumJ.A., CalabreseT., & SilvermanB.S. (2000). Don't go it alone: Alliance network composition and startups’ performance in Canadian biotechnology. Strategic Management Journal, 21, 267–294.
5.
BellR.G., MooreC.B., & Al–ShammariH.A. (2008). Country of origin and foreign IPO legitimacy: Understanding the role of geographic scope and insider ownership. Entrepreneurship Theory and Practice, 31, 185–202.
6.
BenvenisteL.M., BusabaW., & WilhelmW.J. (2002). Information externalities and the role of underwriters in primary equity markets. Journal of Financial Intermediation, 11, 61–86.
7.
BenvenisteL.M. & SpindtP.A. (1989). How investment bankers determine the offer price and allocation of new issues. Journal of Financial Economics, 24, 343–361.
8.
BitektineA. (2011). Toward a theory of social judgements of organizations: The case of legitimacy, reputation, and status. Academy of Management Review, 36, 151–179.
9.
BurrillS.G. & LeeK.B. (1992). Biotech 92: Promise to reality. San Francisco, CA: Ernst & Young.
10.
BurrillS.G. & LeeK.B. (1993). Biotech 93: Accelerating commercialization. San Francisco, CA: Ernst & Young.
11.
BurtR.S. (1997). The contingent value of social capital. Administrative Science Quarterly, 42, 339–365.
12.
CarterR. & ManasterS. (1990). Initial public offerings and underwriter reputation. Journal of Finance, 45, 1045–1067.
13.
CertoS.T., HolcombT.R., & HolmesR.M. (2009). IPO research in management and entrepreneurship: Moving the agenda forward. Journal of Management, 35, 1340–1378.
14.
ChenG., HambrickD.C., & PollockT.G. (2008). Puttin’ on the ritz: Pre–IPO enlistment of prestigious affiliates as deadline–induced remediation. Academy of Management Journal, 51, 954–975.
15.
CohenB.D. & DeanT. (2005). Information asymmetry and investor valuation of IPOs: Top management team legitimacy as a capital market signal. Strategic Management Journal, 26, 683–690.
16.
ColemanJ. (1988). Social capital in the creation of human capital. The American Journal of Sociology, 94, S95–S120.
17.
CollinsS.W. (2004). The race to commercialize biotechnology. London and New York: Routledge Curzon/Taylor & Francis Group.
18.
ConnellyB.L., CertoS.T., IrelandR.R., & ReutzelC.R. (2011). Signaling theory: A review and assessment. Journal of Management, 37, 39–67.
19.
DacinM.T., OliverC., & RoyJ.–P. (2007). The legitimacy of strategic alliances: An institutional perspective. Strategic Management Journal, 28, 169–187.
20.
DasS., SenP.K., & SenguptaS. (1998). Impact of strategic alliances on firm valuation. Academy of Management Journal, 41, 27–41.
21.
DasT.K. & TengB.–S. (1998). Resource and risk management in the strategic alliance making process. Journal of Management, 24(1), 21–42.
22.
DeedsD.L., DecarolisD., & CoombsJ.E. (1997). The impact of firm–specific capabilities on the amount of capital raised in an initial public offering: Evidence from the biotechnology industry. Journal of Business Venturing, 12, 31–46.
23.
DeedsD.L. & HillC.W.L. (1996). Strategic alliances and the rate of new product development: An empirical study of entrepreneurial biotechnology firms. Journal of Business Venturing, 11, 41–55.
24.
DeedsD.L., MangP.Y., & FrandsenM.L. (2004). The influence of firms’ and industries’ legitimacy on the flow of capital into high–technology ventures. Strategic Organization, 2, 9–34.
25.
DeephouseD.L. (1996). Does isomorphism legitimate?Academy of Management Journal, 39, 1024–1039.
26.
DeephouseD.L. (1999). To be different, or to be the same? It's a question (and theory) of strategic balance. Strategic Management Journal, 20, 147–166.
27.
DeephouseD.L. & SuchmanM.C. (2008). Legitimacy in organizational institutionalism. In GreenwoodR., OliverC., SahlinK., & SuddabyR. (Eds.), The SAGE handbook of organizational institutionalism (pp. 49–77). London: Sage.
28.
DiMaggioP.J. & PowellW.W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48, 147–160.
29.
DyerJ.H. & SinghH. (1998). The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23, 660–679.
30.
EchambadiR., CampbellB., & AgarwalR. (2006). Encouraging best practice in quantitative management research: An incomplete list of opportunities. Journal of Management Studies, 43, 1801–1820.
31.
FinkelsteinS. & HambrickD.C. (1990). Top–management–team tenure and organization outcomes: The moderating role of managerial discretion. Administrative Science Quarterly, 35, 484–503.
32.
FischerH.M. & PollockT.G. (2004). Effects of social capital and power on surviving transformational change: The case of initial public offerings. Academy of Management Journal, 47(4), 463–481.
33.
FlorinJ., LubatkinM., & SchulzeW. (2003). A social capital model of high–growth ventures. Academy of Management Journal, 46(3), 374–384.
34.
GeletkanyczM. & HambrickD.C. (1997). The external ties of top executives: Implications for strategic choice and performance. Administrative Science Quarterly, 42, 654–681.
35.
GreenwoodR., OliverC., SahlinK., & SuddabyR. (2008). Introduction. In GreenwoodR., OliverC., SahlinK., & SuddabyR. (Eds.), The SAGE handbook of organizational institutionalism (pp. 1–46). London: Sage.
36.
GreveH.R. (2005). Interorganizational learning and heterogeneous social structure. Organization Studies, 26, 1025–1047.
37.
GulatiR. (1995). Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances. Academy of Management Journal, 38, 85–112.
38.
GulatiR. & HigginsM.C. (2003). Which ties matter when? The contingent effects of interorganizational partnerships on IPO success?Strategic Management Journal, 24, 127–144.
39.
GuoR.–J., LevB., & ZhouN. (2006). The valuation of biotech IPOs. Journal of Accounting, Auditing & Finance, 20, 423–459.
40.
HamiltonB.H. & NickersonJ.A. (2003). Correcting for endogeneity in strategic management research. Strategic Organization, 1, 51–78.
41.
HeckmanJ. (1979). Sample selection bias as a specification error. Econometrica, 47, 153–161.
42.
HigginsM.C. & GulatiR. (2003). Getting off to a good start: The effects of upper echelon affiliations on underwriter prestige. Organization Science, 14, 244–263.
43.
IbbottsonR.G. & JaffeJ.J. (1975). Hot issue markets. Journal of Finance, 30, 1027–1042.
44.
JainB.A. & KiniO. (2006). Industry clustering of initial public offerings. Managerial and Decision Economics, 27, 1–20.
45.
JenkinsonT. & LjungqvistA. (2001). Going public. Oxford: Oxford University Press.
46.
JunkuncM.T. (2007). Managing radical innovation: The importance of specialized knowledge in the biotech revolution. Journal of Business Venturing, 22, 388–411.
47.
JunkuncM.T. & EckhardtJ.T. (2009). Technical specialized knowledege and secondary shares in initial public offerings. Management Science, 55(10), 1670–1687.
48.
KhouryT.A., JunkuncM., & MingoS. (in press). Navigating political hazard risks and legal system quality: Venture capital investments in Latin America. Journal of Management, doi:10.1177/0149206312453737
49.
KhouryT.A. & Pleggenkuhle–MilesE. (2011). Shared inventions and the evolution of capabilities: Examining the biotechnology industry. Research Policy, 40, 943–956.
KokaB.R. & PrescottJ.E. (2002). Strategic alliances as social capital: A multidimensional view. Strategic Management Journal, 23, 795–816.
52.
LeeH., SmithK.G., GrimmC.M., & SchomburgA. (2000). Timing, order and durability of new product advantages with imitation. Strategic Management Journal, 21, 23–30.
53.
LoughranT. & RitterJ.R. (2004). Why has IPO underpricing changed over time?Financial Management, 33(3), 5–37.
54.
MaurerI. & EbersM. (2006). Dynamics of social capital and their performance implications: Lessons from biotechnology start–ups. Administrative Science Quarterly, 51, 262–292.
55.
MeyerJ.W. & RowanB. (1977). Institutionalized organizations: Formal structure as myth and ceremony. The American Journal of Sociology, 83, 340–363.
56.
MinerA.S. & RaghavanS. (1999). Interorganizational imitation: A hidden engine of selection. In BaumJ.A. & McKelveyB. (Eds.), Variations in organization science: In honor of Donald T. Campbell (pp. 35–62). Oxford: Oxford University Press.
57.
MooreC.B., BellR.G., FilatotchevI., & RasheedA.A. (2012). Foreign IPO capital market choices: Understanding the institutional fit of corporate governance. Strategic Management Journal, 33, 914–937.
58.
OliverC. (1991). Strategic responses to institutional processes. Academy of Management Review, 16, 145–179.
ParkN.K. & MeziasJ.M. (2005). Before and after the technology sector crash: The effect of environmental munificence on stock market response to alliances of e–commerce firms. Strategic Management Journal, 26, 987–1007.
61.
PayneG.T., MooreC.B., GriffisS.E., & AutryC.W. (2011). Multilevel challenges and opportunities in social capital research. Journal of Management, 37, 491–520.
62.
PollockT.G., PoracJ.F., & WadeJ.B. (2004). Constructing deal networks: Brokers as network “architects” in the U.S. IPO market and other examples. Academy of Management Review, 29, 50–72.
63.
PollockT.G. & RindovaV.P. (2003). Media legitimation effects in the market for initial public offerings. Academy of Management Journal, 46, 631–642.
64.
PowellW.W., KoputK.W., & Smith–DoerrL. (1996). Inter–organizational collaboration and the locus of innovation: Networks of learning in biotechnology. Administrative Science Quarterly, 41, 116–145.
65.
Robbins–RothC. (2000). From alchemy to IPO. Cambridge, MA: Perseus Publishing.
66.
RothaermelF.T. & DeedsD.L. (2004). Exploration and exploitation alliances in biotechnology: A system of new product development. Strategic Management Journal, 25, 201–221.
67.
SorensonO. & StuartT.E. (2008). Bringing the context back in: Settings and the search for syndicate partners in venture capital investment networks. Administrative Science Quarterly, 53, 266–294.
SuchmanM.C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20, 571–610.
72.
TeohS.H., WelchI., & WongT.J. (1998). Earnings management and the long–run market performance of initial public offerings. Journal of Finance, 53, 1935–1975.
73.
UzziB. (1999). Embeddedness in the making of financial capital: How social relations and networks benefit firms seeking financing. American Sociological Review, 64, 481–505.
74.
ZajacE. & WestphalJ.D. (2004). The social construction of market value: Institutionalization and learning perspectives on stock market reactions. American Sociological Review, 69, 433–457.
