I’m With Them: The Effect of Sending Mixed Signals to the Market (WITHDRAWN)

Abstract

When an actor of uncertain quality enters into a market, that actor’s affiliations with other actors of known status and quality are used as signals by the market to help clarify this uncertainty. Previous literature in economics, management, and sociology has made this point clear and has shown that when these uncertain actors affiliate themselves with high-status others these actors are sending a positive signal to the market and are more likely to reap beneficial returns. However, less is known about how the market reacts to these uncertain actors when they send inconsistent or mixed signals through their affiliations. This research studies mixed signals through within-network affiliations, when high-status actors are present in the affiliation network but do not occupy the highest position within the network’s role hierarchy. Using initial public offerings (IPOs or offerings) data from January 1997 to December 2011 this analysis furthers the status literature finding that the market penalizes firms, in both the short- and long-term, for sending within-network mixed signals. Further, this paper finds that uncertain actors in this setting are better off, in terms of stock performance, sending a consistent low-status signal to the market than a mixed signal.