Abstract
Entrepreneurs bring together the various stakeholders necessary to create new products and services; however, stakeholders face a high level of uncertainty when determining whether to invest their resources in the venture. This paper draws from signaling theory and stakeholder theory to explain how firms that have reputations for outstanding treatment of stakeholders send a signal to potential resource investors that reduces the uncertainty they perceive to be associated with the venture. Perceived uncertainty is reduced because of an enhanced ability to acquire necessary resources, a smaller probability that unexpected events will occur, an increased ability to plan for changes that do occur in the external environment, and the possibility that the strong stakeholder network itself may be a source of sustainable competitive advantage for the firm. While these ideas are applicable to entrepreneurial ventures at many stages, the context examined herein is firms that are preparing for an initial public offering because they have had sufficient time to establish reputations.
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