Credible Signal Research Articles

The Signalling Effect of Corporate Social Responsibility Reporting: Evidence From Short Selling

Using exogenous regulatory changes that have gradually removed short‐sale restrictions in China's stock exchanges, we examine how such deregulation influences firms’ corporate social responsibility (CSR) reporting. Our findings indicate a significant improvement in the calibre of CSR reporting among firms designated as qualified for short selling in a deregulation pilot program (pilot firms) compared to non‐pilot firms. Moreover, our empirical evidence shows that the improvement in CSR reporting practices is greater for pilot firms experiencing stronger downward price pressure, negative earning news, higher bankruptcy risk, greater ownership concentration, and those classified as state‐owned enterprises. These results demonstrate that firms susceptible to price declines from short selling utilize CSR reporting as a visible and credible signal to safeguard and enhance corporate reputation, garnering increased stakeholder support.

Can money buy peace? Efficiency of side‐payments to avoid costly conflicts

AbstractOn the basis of a simple two‐player bargaining game model, we investigate whether a side‐payment strategy can be used to avoid costly conflicts caused by informational barriers. Assuming that utility is transferable with zero transaction cost, we demonstrate that a side‐payment not only provides the incentives to play a peaceful strategy but also contributes to overcoming informational barriers as credible signals. In addition, we show that when actions are strategic complements, a dovish player pays a larger side‐payment while a hawkish pays a higher side‐payment if actions are strategic substitutes. When negotiating parties are homogeneous with actions being either strategic complements or substitutes for both players, it is more likely that informational barriers can be removed with a higher probability of peace equilibrium. When players are asymmetric with one player's actions being strategic complements while the other player's being strategic substitutes, informational barriers might not be removed with higher chances of costly conflicts.

The fed information shocks and the market for corporate control: Predictive and causal effects

We show that contractionary monetary shocks, when reflecting a positive macroeconomic assessment by the Federal Reserve (hereafter “Fed”), predict an economic environment that is characterized by (a) a rise in M&A activity, (b) a higher likelihood of M&A completion, (c) higher bidder gains, (d) limited concerns about M&A overpayment, and (e) higher premia offered by foreign bidders to U.S. targets. Further, Fed information shocks have a standalone and direct causal effect on market expectations of M&A gains. That is, positive Fed information shocks trigger a positive revaluation of pending M&A. This revaluation effect, which holds after controlling for macroeconomic conditions and changes in economic forecasts, is more pronounced in deals that are relatively large, financed with stock, and have received a negative market reaction at the M&A announcement period. Overall, our results highlight the independent and credible signaling role of the Fed in the realm of M&A.

Phoenix rising: a credible signal for CABG from ISCHEMIA?

Phoenix rising: a credible signal for CABG from ISCHEMIA?

Health Advice from Instagram Influencers on Polycystic Ovary Syndrome (PCOS): Their Strategies to Establish and Manipulate Credibility

ABSTRACTIndividuals with polycystic ovary syndrome (PCOS) turn to Instagram influencers as an alternative or complementary PCOS information source to their physicians. However, the ambiguous qualifications of influencers, and contradicting claims regarding how to manage PCOS, make it difficult to identify credible sources. Using a directed qualitative content analysis, we examined the range of strategies that 10 Instagram PCOS influencers used to signal credibility. We found that influencers utilized a range of pseudo‐credibility strategies. Another key contribution of the study is a description of how PCOS influencers reference sources to signal credibility. We also found that Instagram PCOS influencers discuss what it means to be healthy with PCOS, and we describe how they contribute to a wider cultural participation in healthism. The findings build upon the source credibility literature to identify novel credibility cues used by influencers as social media platforms evolve, and further, reveal the underlying healthism‐centric discourse of PCOS influencers.

Digital health startups: growth financing and valuation drivers that signal strength for investors

PurposeThe study investigates the impact of various factors on the number of active investors in digital health startups. Through nine hypotheses, we examine the influence of metrics such as patents, online presence, financial aspects and company valuation on investor interest. The results reveal positive associations between these metrics and investor numbers, highlighting their role in signaling strength and attracting investment. This research enhances the understanding of investor valuation in digital health startups, emphasizing the importance of credible signals for building trust and securing funding. However, we acknowledge limitations in data analysis methods and suggest future research to explore industry signals, longitudinal trends and failed startups for comprehensive insights.Design/methodology/approachThis study delves into the design methodology and approach, aiming to fill gaps in understanding investor roles in valuing digital health ventures. We focus on deciphering factors driving valuations for these startups to secure growth financing. Using signaling theory, we investigate how entrepreneurs communicate their latent strengths to bridge information gaps, aiding investment decisions. We analyze a sample of 482 healthcare startups from the Pitchbook database using Poisson regression in SPSS.FindingsThis research sheds light on the factors driving investor interest in digital health startups. Despite the critical role of entrepreneurs in patient care innovations, the relationship between investor characteristics and funding for digital health technologies still needs exploration. We examine factors influencing investor valuation in healthcare startups and identify patents, social followers and financial disclosures as pivotal elements shaping investor interest. The findings show that all factors for active investors are significant for all variables except similar unique visitors.Originality/valueThese results significantly enhance our understanding of investor decision-making in digital health startups. They confirm the importance of various signals, like patent activity, online presence and financial performance, in attracting investor attention. We utilize unique data sources, offering insights into investors' behavior across different funding stages. In conclusion, these findings underscore investors' crucial role in the growth and funding of healthcare tech startups, emphasizing the need for robust signals to attract investment.

Corporate purpose research: Streams and promises

In this editorial, we identify three approaches to corporate purpose that shed light on distinctive aspects of corporate purpose and organizational life. The statement-centric approach focuses on how purpose can send (or not) credible signals to specific audiences. The experience-based approach highlights the heterogeneity in firm members’ perceptions and understandings of corporate purpose. The decision-making approach proposes that corporate purpose alters decision-making within firms in predictable ways. This editorial contributes ideas for future empirical research. We believe current approaches to corporate purpose should both acknowledge their unique contributions and build on their methodological strengths in order to develop a meaningful understanding of organizations and provide concrete evidence of the impact of corporate purpose on organizational outcomes.

The origin and function of arbitrary signals: Making false statements, having long hair, and smoking Virginia Slims.

We propose a model in which players take actions that run counter to social norms in part to announce their stand on a social controversy but also, and maybe mostly, to gain image benefits that allow them to join groups that are socially attractive to them. We give several examples, but the "election denial" debate is an important application: rather than assuming that proponents believe their claims to be true, it suggests that false statements can serve as symbolic actions and help them engage in self-branding for social and psychological gain. Specifically, the willingness to make a controversial statement can be a credible signal because untruth is ill-received by some members of society and therefore entails some costs. It is immaterial whether election deniers believe their claim to be true, but it is important that some members of society believe that it is false and therefore think poorly of those who make it: if there is social consensus about the truth of a statement, it cannot serve a signaling function. The same mechanism explains several other verbal and nonverbal signals associated with different sides of social controversies and analysis of those helps clarify the mechanism.

Burn the Boats! Market Entry and Firm Boundary Decisions as Signals of Corporate Purpose Credibility

Burn the Boats! Market Entry and Firm Boundary Decisions as Signals of Corporate Purpose Credibility

Untangling cross-border interfirm effects in SMEs’ working capital financing: A cyber-behavioral signaling perspective

This study analyzes the intricate dynamics of cross-border interfirm interactions in the working capital financing of small and medium-sized enterprises (SMEs) by using a novel cyber-behavioral signaling perspective. It emphasizes the pivotal role played by the generation and transmission of credible signals to mitigate informational disparities inherent in SME finance. While extant literature predominantly focuses on physical-centric signal types, our work sheds light on SMEs’ strategic use of behavioral factors in the network ecology to generate and transmit signals. Grounded in signaling theory and informed by network ecology, we propose that network ecology constitutes a fertile environment for SMEs to effectively communicate their creditworthiness through high-quality signals. Using survey data from 276 Chinese SMEs, our empirical analysis reveals that cross-border interfirm effects—both unintentional network spillover and intentional network transitivity—significantly bolster SME financing outcomes. Leveraging digital knowledge repositories mediates the strength and effectiveness of these signals, and exerts an even stronger positive impact on SME working capital financing in the absence of well-established normative mechanisms in the wider business ecosystem. By integrating a cyber-behavioral dimension into signaling theory within the SME financing domain, this research offers new understanding on how SMEs can harness the untapped power of their interconnected relationships to secure external capital. The study contributes to theory and practice by elucidating pathways for SMEs to navigate complex interfirm linkages to facilitate improved access to working capital.

Credible signaling to promote local compliance: Evidence from China's multiwave inspection of environmental protection

AbstractDifferent from common knowledge on central–local information asymmetry, this study focuses on reverse information asymmetry, in which local governments may lack information on the intentions and resolve of the central government. Such information asymmetry can lead to a loss–loss scenario, wherein central‐government‐designed policies are eroded and local governments are punished. Arguably, with a multiwave inspection scheme, the central government can credibly signal its emphasis on certain policies and intentions to punish noncompliance, deterring yet‐to‐be‐inspected local governments. This argument is examined with China's Central Environmental Protection Inspection (CEPI) policy. Empirically, the CEPI policy can reduce pollution in the long run. Moreover, the credible signals generated by the previously completed inspection waves, which encourage local governments to rectify environmental regulations proactively, are essential. Furthermore, the strength of local compliance with central signaling largely depends on the hierarchical and geographical distances from the signaling source to the receiver.Chinese Abstract不同于对中央和地方政府间信息不对称的一般认识, 本研究关注中央和地方政府间的逆向信息不对称现象, 即地方政府可能缺乏对于中央政府意图和决心的了解。上述信息不对称的存在可能导致中央政府制定的政策无法得到有效落实, 同时地方政府由于未妥善履职而受到惩罚的双输局面。本研究指出, 通过分批次的督察机制, 中央政府可以就其对某些政策的重视程度和惩罚违规行为的决心发出可信的信号, 从而对尚未接受督察的地方政府形成有效威慑。本文以中国中央环境保护督察政策为例检验上述理论。实证结果表明, 长期来看中央环保督察政策可以有效控制污染。其核心机制在于, 已完成的督察批次所产生的可信信号, 可以激励其他地方政府主动改善环境规制, 形成对信号的有效响应。此外, 研究还发现地方政府对中央政府政策信号的响应强度取决于信号源的科层距离和地理距离。

Cross-modal credibility modelling for EEG-based multimodal emotion recognition

Objective. The study of emotion recognition through electroencephalography (EEG) has garnered significant attention recently. Integrating EEG with other peripheral physiological signals may greatly enhance performance in emotion recognition. Nonetheless, existing approaches still suffer from two predominant challenges: modality heterogeneity, stemming from the diverse mechanisms across modalities, and fusion credibility, which arises when one or multiple modalities fail to provide highly credible signals. Approach. In this paper, we introduce a novel multimodal physiological signal fusion model that incorporates both intra-inter modality reconstruction and sequential pattern consistency, thereby ensuring a computable and credible EEG-based multimodal emotion recognition. For the modality heterogeneity issue, we first implement a local self-attention transformer to obtain intra-modal features for each respective modality. Subsequently, we devise a pairwise cross-attention transformer to reveal the inter-modal correlations among different modalities, thereby rendering different modalities compatible and diminishing the heterogeneity concern. For the fusion credibility issue, we introduce the concept of sequential pattern consistency to measure whether different modalities evolve in a consistent way. Specifically, we propose to measure the varying trends of different modalities, and compute the inter-modality consistency scores to ascertain fusion credibility. Main results. We conduct extensive experiments on two benchmarked datasets (DEAP and MAHNOB-HCI) with the subject-dependent paradigm. For the DEAP dataset, our method improves the accuracy by 4.58%, and the F1 score by 0.63%, compared to the state-of-the-art baseline. Similarly, for the MAHNOB-HCI dataset, our method improves the accuracy by 3.97%, and the F1 score by 4.21%. In addition, we gain much insight into the proposed framework through significance test, ablation experiments, confusion matrices and hyperparameter analysis. Consequently, we demonstrate the effectiveness of the proposed credibility modelling through statistical analysis and carefully designed experiments. Significance. All experimental results demonstrate the effectiveness of our proposed architecture and indicate that credibility modelling is essential for multimodal emotion recognition.

Does the credibility of open market share repurchase matter?

Previous studies indicate that stock prices react positively to announcements of open market share repurchases (OMR). However, global evidence indicates that some firms announce OMR programs without repurchasing shares. Kracher and Johnson (1997) define such firms as guilty of poor credibility firms. This study investigates whether credibility measurements are associated with market responses using a sample of OMR announcements from 2001 to 2021. Benefitting from the complete information disclosure in Taiwan, an accurate completion rate and cost location variables are adopted to measure a firm's credibility. The results show that the proxy of credibility, i.e., the product of the completion rate and the cost location, positively affect market responses. In addition, a probit model is utilized to predict which firm-specific characteristics lead to high credibility. The findings reveal that firms with low market-to-book ratios, low return volatility, high insider ownership, good firm performance, low dividend yield, and are classified as electronics industry have a high probability of conveying credible signals to investors. Overall, the paper supports the existence of credibility effect and suggests that firms should value their credibility.

Endogenous preferences, credible signaling, and the security dilemma: Bridging the rationalist–constructivist divide

AbstractHow does the potential for socialization affect states' abilities to reassure each other and mitigate the security dilemma? Rationalist scholarship has identified numerous mechanisms by which states can credibly signal benign intentions. Yet it omits the possibility that states' interactions might endogenously shape their identities and domestic structures, and thus alter their basic preferences for or against cooperative outcomes. We present a formal model of the security dilemma that allows the sender's preferences to change endogenously as a function of the receiver's actions. The model yields several key results. First, the possibility of socialization generates incentives for benign actors to risk initiating cooperation, and even sustain cooperation in response to noncooperative signals in the hope of positively socializing the sender. However, conflict can still occur between mutually benign states through novel mechanisms not captured by standard models. These findings carry important implications for recent debates surrounding the US “engagement” strategy toward China.

Window Dressing in Impression Management: Does Negative Media Coverage Drive Corporate Green Production?

This study addresses the calls for research attention on corporate greenwashing and analyzes an environmental strategy in corporate impression management. We assume that negative media coverage triggers impression motivation and causes firms to adopt environmental strategies for impression construction based on the two-component model in impression management. Specifically, firms release credible signals, such as green investment, to cover concealed pollution emissions under the framework of a game with incomplete information. We posit that firms can select a window-dressing strategy under the pressures of negative media coverage by constructing two regression models, respectively. We also assess our underlying assumption of constraints from state ownership and institutional shareholdings by testing additional moderating relationships. Utilizing a sample of Chinese publicly listed firms from 2000 to 2010, our empirical results suggest that negative media coverage increases corporate green investment, but pollutant emissions are reduced correspondingly, and state ownership aggravates corporate window dressing while institutional shareholdings curb it. Our findings reveal the corporate social irresponsibility in environmental protection and sustainable development, and they offer important implications for firm stakeholders.

Skin in the Game and Credible Signaling in Securitization: Are Fintechs Different?

This study explores the association between risk retention by originators (skin in the game) and the performance of securitized assets. We combine hand-collected and publicly available data on 85 Brazilian receivable funds with a single originator from January 2013 to December 2020. We find that skin in the game is a buffer against observable risks in accordance with the buffer hypothesis, although the reputation of originators that are financial institutions in the loan market can alleviate moral hazard concerns. For funds with fintech originators, the opposite holds: enhancements are indeed a signal against the unobservable quality of receivables.

Love, Money, or Fame? Determinants of Turkey’s Leader Visits

Abstract High-level leader visits serve as credible signals in international relations, as they not only reveal the priorities of states in foreign relations but also convey messages to third parties. Observations of Turkey’s elevated diplomatic encounters with Iran, China, and Russia suggest a potential deviation from the West, while visits to Middle Eastern capitals are interpreted as evidence of Turkey’s Islamization. Beyond these individual cases, is it possible to identify a pattern of motivations that determine Turkey’s visit dynamics? By constructing a novel dataset from primary sources like official state documents, “Turkey Visits,” which spans the period from 1989 to 2022, this study aims to both characterize the distribution patterns of high-level leader visits and investigate the underlying factors that influence these patterns.

Companies' ethical certification and their attractiveness to institutional investors: An intermediate signaling perspective

AbstractOur research investigates how the inclusion of a company on an independent ethics index affects its attractiveness to institutional investors. Using a sample of 864 U.S. firms over the 2010–2018 period, we find that institutional investors significantly increase their holdings in companies in the quarter that they are included on the ethics index and maintain larger holdings in the four quarters following the inclusion on the Ethisphere list relative to pre‐inclusion period, with dedicated institutional investors being more swayed to invest than transient investors. This paper adds to the emerging literature on intermediate signaling by showing that a firm's inclusion on an ethics index reduces information asymmetry with institutional investors. Our evidence suggests that public companies should effectively, rather than ceremonially, adopt sound governance structures and invest in socially responsible activities, as these actions can increase their likelihood of being included on ethics indices. By doing so, these firms send credible signals about their ethical compass, granting them access to valuable institutional investments.

Do contingent liabilities affect dividend decisions?

PurposeThe paper examines contingent liabilities' effect on the firm's dividend decisions.Design/methodology/approachFixed-effects regression and logit model results estimate the influence of contingent liabilities on firms' dividend decisions using a sample of 2,288 firm-year observations of S&P 500 firms from 2012 until 2022. Robustness checks and results from the 2SLS model further support the authors’ findings.FindingsThe results show that contingent liabilities negatively affect dividend payment decisions. This analysis further demonstrates that the stated effect of contingent liabilities on dividend decisions is more substantial for firms with financing deficits and those with above-industry-average corporate governance scores.Research limitations/implicationsThere needs to be more systematic conceptual reason for measuring uncertainty for firms and its influence on dividend decisions. Future research should use other measures of firm uncertainty to examine the relation of the firm's uncertainty with dividend decisions.Practical implicationsThe authors suggest that contingent liabilities create uncertainty for future cash flows, influence a firm's agency costs and provide credible signals on a firm's prospects to the market. The findings support existing literature that measurable firm-specific variables significantly influence a firm's dividend decisions. The results are robust for an alternative explanation.Originality/valueBy investigating the impact of the influence of contingent liabilities on dividends, the authors extend research on dividend decisions and attempt to provide insights into a firm's dividend decisions by incorporating an off-the-balance sheet item (contingent liabilities) as a significant predictor for dividend decisions.

The New Tokenomics of Crowdfunding

AbstractWhether proxied by the amount raised or the probability that this amount exceeds the soft cap, the factors driving the fundraising success of token offerings have changed considerably over the past 4 years. Possible factors include target market capitalization for the token, genuine signals of the venture's public credibility, price and momentum of ether, domicile of the venture and distribution of the token. There is a large previous literature on this topic, rooted in the entrepreneurial finance and crowdfunding literature, with numerous hypotheses based on signalling theory in its broadest sense. But due to substantial differences in samples, which end before 2020, the results are not only mixed but out of date. We have built the largest and most complete dataset on token offerings, spanning 2017 and 2022. The determinants of the amount raised were robust to different subsamples until the market virtually disappeared during the Covid pandemic. But it resumed in early 2021 and within 12 months had reached an all‐time high in terms of number if not market capitalization of new offerings. During this period the market changed completely, with success now depending mostly on the type of token offering and the choice of launchpad platform.