Relative Social Capital and Entrepreneurial Firms' IPO Performance in an Emerging Market

Abstract

This study investigates the signaling effect of relative social capital (RSC) on IPO performance of entrepreneurial firms. We argue that by signaling RSC through upstream, lateral and downstream partners an issuing firm can build up organizational legitimacy and obtain greater IPO price premium. Using a sample of 315 IPOs of entrepreneurial firms from 2009 to 2012 from China's emerging ChiNext market, we find evidence for our arguments. The RSC of upstream partners plays a significant signaling role in increasing the IPO price premium whereas the RSC of downstream partners has little contribution. Results suggest that the signaling value of RSC is contingent upon underwriters prestige. Specifically, the RSC of lateral partners in firms without prestigious underwriter contributes more to the IPO price premium than that in firms with prestigious underwriter, whereas RSC of upstream partners in firms with prestigious underwriter makes more contributions to IPO price premium than that in firms without prestig...