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Book part
Publication date: 9 July 2013

Cheng-Wei Wu, Jeffrey J. Reuer and Roberto Ragozzino

This paper examines the use of signaling theory in the M&A context. We review some of the most important developments in applications and extensions of this theory to the…

Abstract

This paper examines the use of signaling theory in the M&A context. We review some of the most important developments in applications and extensions of this theory to the realm of M&A, indicating how this theory has been used to explain many M&A decisions and outcomes and has offered fresh perspectives in the mature literature on acquisitions. For example, we show how signaling theory provides a new view of the determinants of acquisition premiums, and it can contribute to an improved understanding of firms’ search for acquisition opportunities as well as target selection. We also provide a critique of existing research to identify gaps in understanding on the roles played by signals. For instance, we discuss how signals can create contracting problems during M&A negotiations, how the value of signals might vary across deals, and how bidder heterogeneity and bidders’ own signals matter for certain transactions. Finally, in addition to taking stock of this stream of research, we identify some of the most important areas that deserve research attention. Signaling theory can contribute to an improved understanding of acquisition performance outcomes, and signals need to be investigated along with other solutions to enhance M&A deal making and execution. We identify new research methods that would help to advance signaling theory in the acquisitions literature.

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Advances in Mergers and Acquisitions
Type: Book
ISBN: 978-1-78190-836-5

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Book part
Publication date: 12 September 2003

Jeffery S McMullen and Dean A Shepherd

Shane and Venkataraman (2000) suggest “the field [of entrepreneurship] involves the study of sources of opportunities; the processes of discovery, evaluation, and…

Abstract

Shane and Venkataraman (2000) suggest “the field [of entrepreneurship] involves the study of sources of opportunities; the processes of discovery, evaluation, and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them” (p. 218). However, the study of the judgment required for opportunity evaluation has been greatly overshadowed by interest in opportunity recognition and to a lesser extent opportunity exploitation. This is surprising considering the number of economic theories of the entrepreneur that recognize sound judgment as a principal quality of entrepreneurship (Cantillon, 1755; Kirzner, 1973; Knight, 1921; Mises, 1949; Say, 1840; Schumpeter, 1934; Shackle, 1955). In fact, the first recognized theory of the entrepreneur defined the entrepreneur as someone who exercises business judgment in the face of uncertainty (Cantillon, 1755/1931, pp. 47–49). Similarly, Knight (1921, p. 271) suggests that the essence of entrepreneurship is judgment, born of uncertainty, and argues that it is this judgment that delineates the function of entrepreneur from that of manager. He goes on to point out that the function of manager does not in itself imply entrepreneurship but that a manager becomes an entrepreneur when he exercises judgment involving liability to error (Knight, 1921, p. 97). However, the judgment referred to by these theorists is not just any form of judgment, it is judgment exercised in the decision of whether to take action.

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Cognitive Approaches to Entrepreneurship Research
Type: Book
ISBN: 978-1-84950-236-8

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Article
Publication date: 29 June 2020

Husni Kharouf, Donald J. Lund, Alexandra Krallman and Chris Pullig

Drawing on signaling theory, the purpose of this study is to investigate the effects of the strength and framing of firm signals sent to repair relationships following…

Abstract

Purpose

Drawing on signaling theory, the purpose of this study is to investigate the effects of the strength and framing of firm signals sent to repair relationships following relationship violations.

Design/methodology/approach

Three 2 × 2 scenario-based experiments (total n = 527) manipulate signal strength × violation type (Study 1); signal frame × violation type (Study 2); and signal strength × brand familiarity (Study 3) to examine their dynamic impacts on relationship recovery efforts.

Findings

Stronger signals are more effective at relationship repair and are especially important following integrity (vs competence) violations. Signals framed as customer gains (vs firm costs) lead to more favorable relationship outcomes. Finally, brands that are less (vs more) familiar see greater benefits from strong signals.

Research limitations/implications

The three experiments were scenario-based, which may not replicate real-life behavior or capture participants’ actual emotions following a violation, thus future research should extend into real-world recovery efforts.

Practical implications

Managers should send strong signals (communicating the level of resources invested in the recovery efforts) framed as benefits to the customer, rather than costs to the firm. Strong signals are especially important when brand familiarity is low or an integrity violation has occurred.

Originality/value

This is the first research to directly apply signaling theory to the relationship recovery process and contributes to theory by examining the role of signal strength; framing of the signal as a customer gain vs firm cost; and the interplay of signal strength and brand familiarity on the relationship recovery effort.

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Article
Publication date: 8 February 2011

Anthony Celani and Parbudyal Singh

The purpose of this paper is twofold. First, to discuss the application of a multi‐level perspective to signaling theory in a recruitment context. Then to discuss how the…

Abstract

Purpose

The purpose of this paper is twofold. First, to discuss the application of a multi‐level perspective to signaling theory in a recruitment context. Then to discuss how the integration of signaling theory and the social identity approach may provide an improved understanding of the associations between an organization's recruitment activities and applicant attraction outcomes. The paper, first, summarizes the existing research and theoretical developments pertaining to signaling theory, multi‐level theory, and the social identity approach. From this literature a theoretical model from which research propositions are developed is suggested.

Design/methodology/approach

This is a literature review, within recruitment contexts, on signaling theory, the association between market signals and applicant attraction outcomes, and the integration of signaling, social identity, and self‐categorization theories as a theoretical foundation for research propositions.

Findings

Despite widespread acceptance of signaling theory in recruitment research, surprisingly little is known about the boundary conditions in the association between an organization's recruitment activities and applicant attraction outcomes.

Practical implications

A greater understanding of the application of signaling theory will enable managers to design and administer recruitment activities and processes in order to improve applicant attraction to recruiting organizations.

Originality/value

This paper fills a void in the recruitment literature by integrating signaling theory, social identity theory, and self‐categorization theory and providing avenues for future work.

Details

Personnel Review, vol. 40 no. 2
Type: Research Article
ISSN: 0048-3486

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Article
Publication date: 5 July 2018

Yiyi Fan and Mark Stevenson

This paper aims to investigate how supply chain risks can be identified in both collaborative and adversarial buyer–supplier relationships (BSRs).

Abstract

Purpose

This paper aims to investigate how supply chain risks can be identified in both collaborative and adversarial buyer–supplier relationships (BSRs).

Design/methodology/approach

This research includes a multiple-case study involving ten Chinese manufacturers with two informants per organisation. Data have been interpreted from a multi-level social capital perspective (i.e. from both an individual and organisational level), supplemented by signalling theory.

Findings

Buyers use different risk identification strategies or apply the same strategy in different ways according to the BSR type. The impact of organisational social capital on risk identification is contingent upon the degree to which individual social capital is deployed in a way that benefits an individual’s own agenda versus that of the organisation. Signalling theory generally complements social capital theory and helps further understand how buyers can identify risks, especially in adversarial BSRs, e.g. by using indirect signals from suppliers or other supply chain actors to “read between the lines” and anticipate risks.

Research limitations/implications

Data collection is focussed on China and is from the buyer side only. Future research could explore other contexts and include the supplier perspective.

Practical implications

The types of relationships that are developed by buyers with their supply chain partners at an organisational and an individual level have implications for risk exposure and how risks can be identified. The multi-level analysis highlights how strategies such as employee rotation and retention can be deployed to support risk identification.

Originality/value

Much of the extant literature on supply chain risk management is focussed on risk mitigation, whereas risk identification is under-represented. A unique case-based insight is provided into risk identification in different types of BSRs by using a multi-level social capital approach complemented by signalling theory.

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Supply Chain Management: An International Journal, vol. 23 no. 4
Type: Research Article
ISSN: 1359-8546

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Article
Publication date: 6 March 2017

Hong Yuh Ching and Fábio Gerab

The purpose of this paper is to extend the applicability of stakeholder, legitimacy and signaling theories by examining to what extent proactive corporate social…

Abstract

Purpose

The purpose of this paper is to extend the applicability of stakeholder, legitimacy and signaling theories by examining to what extent proactive corporate social responsibility disclosures are interrelated to attempt to gain and maintain legitimacy, to gain support of the stakeholders and to reduce information asymmetry.

Design/methodology/approach

To test the theoretical arguments, a longitudinal approach over a five-year period of 145 companies’ sustainability reports and statistical analysis was applied to investigate the evolution of their quality.

Findings

The results show a significant increase in the quality of sustainability reporting, and the experience gained while writing these reports can contribute to this. Based on signaling and legitimacy theories, this paper suggests that improvement in sustainability reporting quality acts as an important signal to gain legitimacy in case of information asymmetry during the legitimacy process. Th disclosure for economic and social dimensions is better than that of the environmental dimension, and the improvement in quality over time is the because of synergies and interlinkages more between these two dimensions of sustainability, and to a lesser extent because of the environmental dimension.

Practical implications

Firms should view investing in sustainability reporting disclosure as a strategy for obtaining business legitimacy.

Originality/value

The results of this paper are of interest for several reasons: extend and broaden the use of signaling in studying its use on sustainability reporting; the use of three theories is an appropriate framework for empirical analysis of sustainability reporting disclosure quality in Brazil; and add to the scarce evidence of sustainability reporting in Brazil.

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Social Responsibility Journal, vol. 13 no. 1
Type: Research Article
ISSN: 1747-1117

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Article
Publication date: 4 July 2020

Bipin Kumar Dixit, Nilesh Gupta and Suman Saurabh

The purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle…

Abstract

Purpose

The purpose of this paper is to examine the dividend payout behavior of Indian firms and test whether the three prominent dividend policy theories (signaling, life-cycle and catering) explain the dividend policy of Indian firms.

Design/methodology/approach

The authors test the three theories using the methodology based on the studies of Nissim and Ziv (2001), DeAngelo et al. (2006) and Baker and Wurgler (2004). For testing the signaling theory, the authors regress the change in earnings on the rate of change in dividends using the pooled and Fama–Macbeth regressions. The life cycle theory is tested by running a logistic regression of the dividend payment decision on two proxies of life-cycle measured by the ratio of earned to total equity. Finally, the catering theory tests the relationship between the decision to pay a dividend and the dividend premium.

Findings

The results based on a sample of Indian firms from 1992 to 2017 show that the dividend policy of Indian firms can be explained using the life-cycle theory. However, there is no evidence in support of the signaling and catering theories.

Originality/value

It provides insights into the dividend policy of Indian firms. Though there have been a few studies examining the dividend payout in India, none of the existing studies tests these theories of dividend payout. The existing research using the Indian data provides indirect evidence about the life-cycle theory. This study is the first one to test the application of these theories for Indian firms.

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Managerial Finance, vol. 46 no. 11
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 6 May 2014

Asher Pericles Rospigliosi, Sue Greener, Tom Bourner and Maura Sheehan

–The purpose of this paper is to revisit the debate on the contribution of higher education (HE) to the economy which has been dominated by human capital theory and…

Abstract

Purpose

–The purpose of this paper is to revisit the debate on the contribution of higher education (HE) to the economy which has been dominated by human capital theory and signalling theory. Human capital theory contends that HE contributes by adding to the potential productivity of graduate employees. Signalling theory, asserts that HE contributes by enabling employers to differentiate potentially productive graduate employees.

Design/methodology/approach

The paper uses recent advances in our understanding of the graduate employability to reassess the two theories. Most graduate job vacancies are open to graduates of any subject and the key to employment in such jobs appears to be the graduate propensity to learn in employment.

Findings

HE both increases students’ propensity to learn in employment and signals to employers that graduates are people with a high propensity to learn in employment.

Practical implications

The conclusion is that for the four key stakeholder groups, the economic value of a university education can best be explained with the concept of “graduate propensity to learn”.

Social implications

Employers, government, existing students and potential students and universities benefit from the propensity to learn, which is the most important economic outcome of a university education.

Originality/value

The paper resolves the choice between human capital and signalling theories as a false dichotomy as HE both develops students’ powers.

Details

International Journal of Social Economics, vol. 41 no. 5
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 30 April 2020

Burze Yasar, Thomas Martin and Timothy Kiessling

This study aims to support and extend signalling theory because of information asymmetry. This study also aims to answer the call to further negative signalling and…

Abstract

Purpose

This study aims to support and extend signalling theory because of information asymmetry. This study also aims to answer the call to further negative signalling and explore immediate reactions to signals, thus alleviating a gap with regard to temporality of signalling.

Design/methodology/approach

The study used two separate data sources, the S&P 500 and 51,500 pages of the public papers between 1981 and 1999, nearly 20 years of data. Inter-rater reliability, controlled for all macroeconomic announcements identified in the literature, is used, and the data are empirically tested using generalized autoregressive conditional heteroscedasticity (GJR-GARCH) modelling.

Findings

In accordance with signalling theory and the efficient market hypothesis, the study found that receivers do react to positive signals from a credible insider signaller to obviate information asymmetry. In line with previous research, the study also finds that receivers react much stronger to negative signals.

Practical implications

Investors, financial managers and top executives responsible for their stock price need to focus on presidential signalling as these directly affect market volatility. In particular, investors and financial managers can predict stock price volatility based upon signals from the president.

Originality/value

This is the first research study that explores the correlation between presidential signalling and market volatility. This study is important for investors and financial managers.

Details

Management Research Review, vol. 43 no. 11
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 3 August 2015

Huifang Li, Yulin Fang, Youwei Wang, Kai H. Lim and Liang Liang

In the competitive e-marketplace today, sellers are using an increasing number of signals to entice customers to make online purchases. However, how differential these…

Abstract

Purpose

In the competitive e-marketplace today, sellers are using an increasing number of signals to entice customers to make online purchases. However, how differential these signals are in terms of their capacity to improve sales performance has not yet been investigated. The paper aims to discuss this issue.

Design/methodology/approach

Drawing on signaling theory and grounded in the context of China’s largest e-marketplace, Taobao, this study investigated the different effects of five commonly used signals on the sales performance of e-marketplace sellers.

Findings

The authors find that warranty has the highest effect on sales performance, followed by overall rating, mean detailed seller rating, percent of positives, and web site quality.

Originality/value

First, this study builds on signaling theory and contributes to the e-marketplace literature by providing new insights into how specific signals differentially affect sales performance in the e-marketplace (with evidence from a large-scale empirical analysis). Second, the study extends the applicability of signaling theory to the e-marketplace domain by incorporating distinctive features of the e-marketplace into the original signaling theory. Finally, the findings lend practical support to e-marketplace sellers’ investment decisions on signals and provide guidelines for deployment of such signals.

Details

Information Technology & People, vol. 28 no. 3
Type: Research Article
ISSN: 0959-3845

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