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In this paper, we develop a simple model of the signaling value of the General Educational Development certificate (GED) credential. The model illustrates necessary assumptions for a difference-in-differences estimator that uses a change in the GED passing standard to yield unbiased estimates of the signaling value of the GED for marginal passers. We apply the model to the national 1997 passing standard increase, which affected GED test takers in Texas. We utilize unique data from the Texas Schools Micro Data Panel (TSMP) that contain demographic and GED test score information from the Texas Education Agency linked to pre- and post-test-taking Unemployment Insurance quarterly wage records from the Texas Workforce Commission. Comparing Texas dropouts who acquired a GED before the passing standard was raised in 1997 to dropouts with the same test scores who failed the GED exams after the passing standard hike, we find no evidence of a positive GED signaling effect on earnings. However, we find some evidence suggesting that our finding may be due to the low GED passing threshold that existed in Texas for an extended period.

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.

Massive shifts in the recruitment landscape, the continually changing nature of work and workers, and extraordinary technological progress have combined to enable unparalleled advances in how current and prospective employees receive and process information about organizations. Once the domain of internal organizational public relations and human resources (HR) teams, most employment branding has moved beyond organizations’ control. This chapter provides a conceptual framework pertaining to third party employment branding, defined as communications, claims, or status-based classifications generated by parties outside of direct company control that shape, enhance, and differentiate organizations’ images as favorable or unfavorable employers. Specifically, the authors first theorize about the underlying mechanisms by which third party employment branding might signal prospective and current employees. Second, the authors develop a framework whereby we comprehensively review third party employment branding sources, thus identifying the different ways that third party employment branding might manifest. Third, using prototypical examples, the authors link the various signaling mechanisms to the various third party employment branding sources identified. Finally, the authors propose an ambitious future research agenda that considers not only the positive aspects of third party employment branding but also potential “dark sides.” Thus, the authors view this chapter as contributing to the broader employment branding literature, which should enhance scholarly endeavors to study it and practitioner efforts to leverage it.

In this chapter, we explore the multilevel nature of reputation from a shared value perspective. Building on a large body of literature surrounding corporate reputation, we discuss how the creation of reputational value at the firm level may also lead to value shared by the industries and countries in which a firm operates, and vice versa. In examining the recursive and dynamic relationships, strategic implications emerge with regard to managing reputations globally. We argue that the value of reputation is determined by the ability to meet the expectations of stakeholders with respect to what they as an audience perceive as important. Stakeholders’ expectations and perceptions of what is valuable fluctuate across different markets and the more heterogeneous the markets in which a firm diversifies internationally, the more difficult it will be to manage all these expectations. By building on our understanding of firm, industry, and country reputation, and the recursive relationships between them, we contend that creating shared value (CSV), as part of the global reputation management process (GRM), is likely to be easier when there is contextual similarity and limited product diversification. Building on previous frameworks, and employing signaling theory, we create a simplified model of GRM that highlights CSV in the form of multilevel reputation. Distinctions are drawn between being efficient and effective as part of the GRM process and a corresponding typology is created. The chapter concludes with a discussion of strategic implications, alongside a few recommendations, and possible directions for future research.

Strategy and entrepreneurship scholars have identified many benefits of signaling for new ventures to access resources in financial and other factor markets. However, scholars have not studied the extent to which new ventures can employ signals to hire new talent. This chapter investigates inventor mobility across biopharmaceutical new ventures and examines the effects of two signals, venture capitalist (VC) prominence and alliance network prominence. We suggest that VC prominence and alliance network prominence can provide assurances to prospective employees about a venture's resources and prospects, thereby facilitating inventor mobility owing to enhanced labor market efficiency. Empirical evidence from biopharmaceutical startups shows that new ventures can benefit from signals emanating from their ties to VCs and alliance partners and attract inventors to join them. We also find that these signaling effects attenuate as information asymmetry diminishes.

This chapter examines the use of signaling mechanism to identify promising acquisition targets. It draws on the importance of inter-organizational relationships of target firms and their relevance as signals of firm quality. It takes into account two types of inter-organizational relationships, alliances and corporate venture capital (CVC) investments. It further identifies the boundary conditions that are most likely to influence the acquisition decision of the acquirer. These are based on the characteristics of target firms and their partners. By considering the role of CVC investments and alliances as signals of firm quality, the study draws a connection between how the different types of equity and non-equity relationships of firms influence the acquirer’s choice of potential takeover target.

The theoretical frame based on the signaling perspective provides fresh and valuable insights to evaluate the quality of target firms. The research provides directions for future opportunities to examine the value of signals and whether such signals create synergies in mergers and acquisitions (M&A) deals. The author identifies new avenues of research that would help to move forward the signaling perspective in the literature on M&A.

This experiment analyzes multi-offer versions of the signaling and screening litigation games, as well as a bilateral multi-offer litigation game. A plaintiff has either a low or a high claim on an uninformed defendant, and the two negotiate in an attempt to reach a pre-trial settlement. Trial is costly, and settlement generates surplus over which the two parties can bargain. In the signaling game, the defendant has the power to make the offer, while the plaintiff makes the offer in the screening game. Previous experiments on single-offer games find that disputes occur even when offers contain surplus not predicted under the theory, and fairness appears to be important in explaining deviations from theory. This research examines whether renegotiation in the form of successive sequential offers can yield efficiency gains via lower dispute rates. There are four main findings. One, under the one-sided multi-offer structure the excess dispute rate is 23 percentage-points lower in the screening game, and the high-offer dispute rate is 31 percentage-points lower in signaling game. The bilateral game yields an additional 15 percentage-point reduction in the high-offer dispute rate, but excess disputes persist. Two, in these games, proposers take advantage of the multi-offer opportunity and make around three to four offers per negotiation. Three, across games the surplus in a fair offer remains constant at about one-sixth of the surplus, but the empirical benchmark from which this is measured varies according to which player has the power to make the offer. In the one-sided games, the benchmark is the respective zero-surplus endpoint, but in the bilateral game the benchmark is the surplus midpoint. Fourth, dynamic behavior plays an important but complex role in observed outcomes. Multi-offer mechanisms may be alternatives to costly information transmission mechanisms like disclosure or discovery.

This paper is the first to present empirical evidence consistent with models of signaling through unemployment and to uncover a new stylized fact using the 1988–2006 Displaced Worker Supplement (DWS) of the Current Population Survey (CPS), namely that, among white-collar workers, post-displacement earnings fall less rapidly with unemployment spells for layoffs than for plant closings. Because high-productivity workers are more likely to be recalled than low-productivity ones, they may choose to signal their productivity though unemployment, in which case the duration of unemployment may be positively related to post-displacement wages. Identification is done using workers whose plant closed as they cannot be recalled, and no incentives to signal arise.

In the rapidly changing and globalizing environment, mergers and acquisitions (M&As) have become increasingly important. In this study, we paid specific attention to the voluntary announcements of M&A budgets by Japanese firms. We discussed the antecedents and consequences of such announcements by incorporating the context of Japan, which has experienced an enduring economic downturn since 1990 and is in the process of adopting a Western style of governance. Drawing on signaling theory and impression management theory, this exploratory study intended to contribute to the literature by incorporating the influence of the social context and by arguing for the possibility that announcements of M&A budgets may be used not only for strategic purposes but also for impression management and to reduce information asymmetry.

Purpose – Although some literature exists on how consumers may interpret firm-generated signals about the unobservable quality of their product, there has been little effort to examine whether and how managers deploy signals about unobservable quality to compete.Design/methodology/approach – In this chapter, we address this issue by examining whether managers consciously use signals to compete with other firms, and how they choose between the vast number of signals available to them. We develop a formal model that allows us to generate a set of predictions drawn from information economics and behavioral decision theory. The predictions specify a pattern of managerial behavior according to which signals belonging to some categories are relatively attractive (for economic as well as psychological reasons).Findings – We report on the results of a series of three experiments in which executives are given the opportunity to deploy signals to communicate unobservable quality to skeptical consumers in a competitive market.Value/originality – The results of the studies provide compelling evidence in support of the formal argument.