Signaling Theory Research Articles

THE INFLUENCE OF ASSET TANGIBILITY, GROWTH OPPORTUNITY, AND BUSINESS RISK ON CAPITAL STRUCTURE IN THE PROPERTY AND REAL ESTATE SECTOR OF THE INDONESIA STOCK EXCHANGE

This study examines the influence of asset tangibility, growth opportunity, and business risk on capital structure in property and real estate companies listed on the Indonesia Stock Exchange (IDX) from 2016 to 2018. Using a quantitative associative approach, the research analyzes secondary data from financial reports of 22 companies. The results indicate that asset tangibility has a negative impact on capital structure, suggesting that companies with higher tangible assets rely more on internal financing. Growth opportunity positively affects capital structure, meaning companies with strong growth potential tend to use more debt for expansion. Business risk also positively impacts capital structure, implying that higher business risks encourage greater debt usage for financial discipline. These findings align with agency theory and signal theory, highlighting the importance of internal factors in financing decisions. This research provides insights for managers and investors in optimizing capital structure strategies.

How corporate social responsibility reporting affects financial performance? Evidence from Saudi Arabia

This study examines the relationship between CSR disclosures and the performance of Saudi Arabian companies. It analyzes the annual financial reports of 90 non financial companies listed on the Saudi Stock Exchange (Tadawul) from 2019 to 2023. Using content analysis software, the study evaluates the quality of financial reports and identifies the extent of philanthropic, environmental, and social related disclosures. Subsequently, the impact of philanthropic, environmental, and social disclosures on key performance indicators, such as return on assets (ROA) and return on equity (ROE), is assessed. A CSR disclosure list was developed through a principal content analysis of the annual financial reports. The findings reveal a significant positive relationship between CSR disclosure and corporate performance metrics across all models. These results align with stakeholder and signaling theories, suggesting that robust CSR practices enhance financial performance and serve as credible signals to stakeholders. Notably, sector specific variations were identified, with non manufacturing firms exhibiting stronger positive correlations between CSR disclosures and performance measures compared to manufacturing firms. Additionally, firm characteristics such as size were found to significantly influence the CSR performance relationship. This research contributes to the expanding body of literature on CSR and corporate performance in emerging markets. It offers valuable insights for policymakers, investors, and corporate leaders navigating the evolving sustainable business landscape in Saudi Arabia. The findings underscore the pivotal role of CSR disclosure in fostering sustainable and responsible business practices in the region. Keywords: Corporate Social Responsibility, Disclosure, Philanthropic, Social, Environmental, Financial Performance.

From greenwashing to brand avoidance: the roles of perceived risk, trust and negative word-of-mouth

PurposeThis study explores the intricate relationships between greenwashing (GW), negative word-of-mouth (NWoM) and brand avoidance (BA), emphasizing the pivotal roles of green perceived risk (GPR) and green trust (GT). By analyzing these dynamics, the study sheds light on the effect of GW on consumer reactions and behaviors toward brands engaging in green marketing practices.Design/methodology/approachThe current study used a survey dataset of 512 customers in Saudi Arabia and applied partial least squares-structural equation modeling (PLS-SEM) to assess the paths within the proposed model.FindingsThe findings of this study indicate that consumers’ perceptions of GW can harm brands. Specifically, GW positively influences BA through both GPR and GT. Moreover, GW directly affects NWoM and indirectly via GPR.Practical implicationsThe study provides actionable insights for practitioners, emphasizing the importance of avoiding deceptive green marketing (i.e. GW) to build consumer trust and reduce negative behaviors like BA and NWoM. By adopting transparent practices and leveraging third-party environmental certifications, brands can enhance credibility, mitigate risks and maintain customer loyalty in sustainability-focused markets.Originality/valueDrawing on signaling theory and expectancy violation theory, this study builds a new framework to highlight the harmful effects of GW on brands. By integrating these theories, the framework effectively explains how GW can trigger extreme responses such as NWoM and BA, thereby contributing to research that has previously overlooked the connections between these factors.

Financial Strategies Driving Market Performance During Recession in Nigerian Manufacturing Firms

This study examines the interplay between leverage, dividend policy, and market performance in Nigeria’s manufacturing sector during the economic downturn of 2016–2020. Drawing on signaling and trade-off theories, we investigate how firms balanced leverage and dividend payouts to sustain performance amidst macroeconomic shocks, including currency depreciation, inflation, and weakened consumer demand. Using panel data from 26 Nigerian Stock Exchange-listed firms, the study applies pooled ordinary least squares (POLS) and fixed-effect models (FEM) to analyze the direct and interactive effects of leverage and dividend policy on market performance, controlling for profitability, firm size, and taxation. The findings reveal that leverage generally exerts a negative effect on firm value, particularly long-term debt, which increases financial distress risks. However, the interaction between leverage and dividend payouts positively moderates this relationship, suggesting that firms use dividends strategically to signal stability and mitigate leverage-related risks. Profitability emerges as a key determinant of firm value, while short-term debt provides operational flexibility, and taxation imposes significant financial strain. Larger firms demonstrate greater resilience, benefiting from scale economies and diversified funding sources. This research highlights the importance of an integrative financial strategy during periods of economic uncertainty, emphasizing the complementary roles of leverage and dividend policy in enhancing firm value. The findings offer critical insights for policymakers and corporate managers in emerging markets, advocating for tax reforms and prudent financial management to improve business resilience. By addressing gaps in the literature, this study contributes to the understanding of financial decision-making in developing economies.

Bragging About Valuable Resources? The Dual Effect of Companies’ AI and Human Self‐Promotion

ABSTRACTAs companies actively invest in self‐promotion of Artificial Intelligence (AI) empowered services to sustain their competitive advantage, there is a growing potential for such promotional activities to backfire. Bridging signaling theory with the resource‐based view, this research reveals that companies’ self‐promotion of AI resources can reduce customers’ willingness to engage with AI‐based (vs. human‐based) services. Four studies, including text mining and experiments, demonstrate that companies’ self‐promotion of AI‐based resources has a detrimental effect on willingness to engage, and concurrently perceived as exaggeration. In contrast, companies’ self‐promotion about human‐related resources yields beneficial outcomes, since such promotional signals contribute to the enhancement of human capital. The findings suggest that self‐discrepancy and trust are the key underlying factors driving the effects as customers may experience a discrepancy between their expectations of human‐like service interactions and actual AI capabilities. Additionally, findings reveal the moderating effect of honest (vs. self‐promotional) framing on the relationship between service type (AI vs. human) and willingness to engage. Customer perceptions of AI appear less influenced by presentation style compared to perceptions of human resources. This research provides valuable insights into how customers respond to companies’ self‐promotion of AI resources and emphasizes the need for promotional alignment with customers’ expectations about AI.

Pre-entry experience, knowledge inheritance, and entrepreneurial resource mobilization

Abstract We study the conditions under which founders’ pre-entry experience in the industry affects the prospects of new ventures mobilizing financial resources. Drawing on signaling theory, we theorize that the signal value of pre-entry experience is contingent on the extent to which new ventures leverage such experience as well as the environmental context in which they operate. Specifically, we argue that knowledge linkages to founders’ former employer increase the clarity of the pre-entry experience signal. We further posit that this clarified pre-entry experience signal is more valuable in competitive environments. We investigate these effects by focusing on the time to first VC funding for startups in the US semiconductor industry. We show that (1) knowledge linkages to the founders’ previous employer accentuate the effect of pre-entry experience by further shortening the time to VC funding and (2) this shortening in time is more significant when the industry clustering is high.

How central policy signals promote the implementation of public–private partnership policies: an empirical analysis of 257 prefecture-level cities in China

Against expectation, strong central signals do not consistently drive PPP adoption. Using panel data from 257 prefecture-level cities between 2012 and 2021, this study explores that weaker central signals can be more effective in prompting PPP adoption. The influence of central signals is more pronounced in cities that have higher marketization levels, especially those in the eastern region, led by older leaders, in large or mega cities, and having high openness and many private enterprises. Provincial signals exert greater influence on PPP adoption relative to central ones, which serve as conduits for central policies to innovate PPP at the local level, thus highlighting the significance of intergovernmental relations. These insights challenge conventional wisdom about top-down policymaking in centralized governance contexts, deepen our understanding of PPP implementation in developing economies and under centralized governments, and thus enrich the application of signal theory to public policy.

How Does ESG Ratings Influence IPO’s Underpricing? Evidence from the US Market

Purpose: The purpose of this paper is to analyse the impact of ESG ratings on IPOs performance in the form of underpricing. It is also analysed whether the existence of neutral or positive ESG ratings has an impact on underpricing. In addition, it will also be analysed whether the degree of ESG rating influences the underpricing within the rated companies. The aim is to make a contribution that can lead to a further reduction in information asymmetries on the capital markets and analyse the effects of signals. Design/Methodology/Approach: The RepRisk rating of approx. 360 sub-frames is used to determine the influence of these variables on the underpricing with the help of a linear regression. Control variables are used to consider influencing factors that have already been researched. The influence of these variables on underpricing is then determined in a linear regression analysis. Statistical robustness tests validate the results. Findings: An all-encompassing statement on the question of whether ESG ratings as part of the IPO process can lead to a reduction of information asymmetries or be a qualitative signal regarding the Signaling Theory. Originality/Value: This paper provides new and important insights into the relationship between ESG ratings and the underpricing phenomenon. It is intended to support existing theories. JEL Classification G11, Q56

THE IMPACT OF ESG PRACTICES ON THE RISK PORTFOLIO OF LISTED OIL AND GAS FIRMS IN NIGERIA USING A MULTILAYERED CRITERION

This study investigates the impact of Environmental, Social, and Governance (ESG) factors on the risk-adjusted returns of Nigerian oil and gas firms listed on the Nigerian Exchange Group (NGX) over a 11-year period (2012–2022). The study was anchored on signalling theory. Utilizing a correlational research design, data was collected from eight firms meeting inclusion criteria, focusing on ESG scores as independent variables, with Firm Size as a control variable, and risk-adjusted returns as the dependent variable. Diagnostic tests ensured adherence to Best Linear Unbiased Estimator (BLUE) assumptions. Employing both Ordinary Least Squares (OLS) and Two-Stage Least Squares (2SLS) regression techniques, the study addresses potential endogeneity, using industry norms as an instrumental variable (IV) in the 2SLS model. Findings indicate significant, positive relationships between ESG factors and risk-adjusted returns, emphasizing the financial viability of sustainable practices in a sector known for environmental and social risks. Hence, to strengthen financial and operational resilience, Nigerian oil and gas firms are encouraged to prioritize robust environmental practices, including emission reduction, waste management, and prevention of oil spills. Given the social challenges in regions like the Niger Delta, firms should focus on building trust and maintaining positive relationships with local communities through initiatives in healthcare, education, and infrastructure. This study provides key insights into how ESG engagement in Nigerian oil and gas firms may influence firm stability, resilience, and investor confidence, underscoring the role of signalling theory in linking ESG performance to enhanced corporate valuation.

The Influence of Liquidity, Solvency, and Activity Ratios on Profit Changes in Consumer Goods Companies Listed on the Indonesia Stock Exchange (IDX)

This study examines the effect of liquidity, solvency, and activity ratios on profit changes of consumer goods companies listed on the Indonesia Stock Exchange (IDX) from 2018-2022. Using purposive sampling, 30 companies were selected. Secondary data from financial statements was analyzed using multiple linear regression. The results show that current ratio (CR) and total asset turnover (TATO) have a significant positive effect, while debt-to-equity ratio (DER) has a significant negative effect on profit changes. These findings align with signaling theory and the DuPont model. The study contributes to financial ratio analysis research and offers practical implications for company management and investors in evaluating financial performance and making decisions. Future research should expand the sample, explore other ratios and variables, and examine different sectors.

Tax Planning and Decision-Making: a Study in Manufacturing Companies

Objective: The objective of this research is to analyze the relationship between tax planning and decision-making in companies in the manufacturing sector of the city of Quito. Theoretical Framework: In the development of theories on tax compliance, which constitute the theoretical basis for tax control strategies, the theories of deterrence, behaviorism and signaling are detailed. Method: This study involves the application of mixed methods through an exhaustive documentary and bibliographic review. The research is classified as descriptive and correlational. In addition, a survey has been structured with a Likert scale. Results and Discussion: From the data collected, it was concluded that there is a high degree of relationship between tax planning and business decision-making. Research Implications: The design and implementation of proper tax planning leads to more viable decision-making for a company's economic and financial health. This finding supports the idea that organizations can optimize their bottom line by effectively incorporating tax planning strategies into their decision-making processes. Originality/Value: The importance of the impact of the tax burden on the results of organizations is recognized, and, therefore, this research is positioned as a valuable contribution for companies to have a meaningful tool when designing strategies aimed at optimizing their economic and financial resources.

Signal theory based encryption of faster-than-Nyquist signals for fiber and wireless transmission

New applications such as the Internet of Things, autonomous driving, Industry X.0 and many more will transmit sensitive information via fibers and over the air with envisioned data rates beyond terabits per second. Therefore, the encryption has to be simple, fast and spectrally efficient, so that the power consumption and latency are low and the scarce bandwidth is not wasted. Various encryption schemes, based on mathematical algorithms, quantum theory, chaos communication or spectral spreading below the noise level have been explored. Besides power, spectral efficiency and latency, most of these approaches face additional challenges such as limited data rates, compatibility issues with communication standards and integration. Here, we propose a signal theory based method that enables the encryption of super-signals with bandwidths of hundreds of gigahertz without any additional bandwidth. In proof-of-concept experiments we demonstrate the encryption of a 270 GBd faster than Nyquist super-signal in a 252.4 GHz bandwidth. The encryption is simple, fast and power efficient, and offers a solution for secure data transmission in existing and future communication networks.

Supplier Slip-Ups: How Malpractices Can Bite Into Restaurant Market Value

Ethical, environmental, and human rights standards are critical issues in the tourism and hospitality industry. In this context, restaurants must choose third-party members—such as suppliers—that align with their quality and sustainability standards, especially because these third-party members may encounter challenges related to food safety, ethical misconduct, environmental matters, and human rights violations. This study analyzes whether the market holds restaurants accountable for the shortcomings of their suppliers, even when the restaurant has not directly participated in or caused these problems. Based on signaling theory and the associative network memory paradigm, this study finds that supplier issues negatively affect the market value of restaurants, with indirect linkage exerting a greater impact than direct linkage, which informs these theories by underscoring the importance of memory and associations dynamics.

Does green innovation facilitate buyer firms’ attainment of trade credit from suppliers? A signalling theory perspective

PurposeAs a crucial supply chain financing instrument, trade credit has become increasingly important for firms to enhance financial flows in supply chains. Yet, scant research has examined how firms’ green innovation affects the attainment of trade credit from their suppliers. To bridge this gap, this study aims to draw on signalling theory to investigate the impacts of incremental green innovation (IGI) and radical green innovation (RGI) on trade credit and the contingent roles of supplier concentration and industry dynamism.Design/methodology/approachUsing a data set of 3,302 Chinese listed manufacturing companies from 2007 to 2021, our research adopts fixed-effect regression models to test the proposed hypotheses.FindingsThe authors find that both IGI and RGI exert a positive effect on trade credit. Interestingly, supplier concentration weakens the association between RGI and trade credit, whereas it does not significantly influence the association between IGI and trade credit. Moreover, industry dynamism attenuates the relationship between IGI and trade credit, whereas it does not significantly alter the relationship between RGI and trade credit.Originality/valueThe paper extends the supply chain finance literature by applying signalling theory to uncover the effects of IGI and RGI on trade credit and the distinct contingency roles of supplier concentration and industry dynamism. It also provides supply chain managers with important implications regarding how to tailor the strategies of implementing different types of green innovation to acquire more trade credit in different situations.

Sustainability Reporting Awards and Market Reaction: The Sustainability Awareness of Investors on the Vietnam Stock Market

ABSTRACTIn recent years, the global emphasis on sustainable business practices has grown, driven by the urgent need to address environmental and social challenges such as climate change, resource depletion, and inequality. This shift has intensified demands from stakeholders for greater corporate transparency and accountability, leading to the widespread adoption of sustainability reporting to demonstrate organizational commitment to sustainability. In Vietnam, the Sustainability Reporting Award (SRA), launched in 2013 by the stock market regulator and key stakeholders, seeks to enhance the quality of sustainability reporting. Using an event study methodology, this research investigates the impact of the SRA on market reactions in the Vietnamese stock market between 2013 and 2022. The findings reveal that award‐winning companies achieve significantly higher average abnormal returns, particularly within the 5 days following the announcement, reflecting a strong positive market response. However, this effect diminishes post‐COVID‐19, underscoring the pandemic's influence on market dynamics. The study supports signaling theory by demonstrating that sustainability awards act as credible signals of a firm's commitment to sustainable practices, thereby strengthening investor confidence. These results underscore the strategic value of sustainability initiatives for firms and offer actionable insights for policymakers aiming to promote sustainability reporting and drive sustainable growth.

Costly Signaling in Ancient Chinese Narratives

Abstract Seemingly reckless, wasteful, or self-harming actions depicted in narrative sources are embedded in the philosophical and political discourse of Warring States and early imperial China (around the third to the first century bce). Signaling theory unveils the underlying rationality of many such acts by demonstrating how they allow actors with conflicting interests to pursue their goals while reducing costs compared to alternative scenarios. Ancient Chinese thinkers did not discuss signaling theory in the abstract; they were, however, keenly aware of the underlying mechanisms, at times articulating them in the context of specific cases. Comparisons of multiple narrative versions suggest that plot elements related to signaling became more pronounced and the understanding of signaling more profound during the period, most likely due to heightened socio-political and military competition.

How SMEs’ supply chain specific investment impacts supply chain financing performance: insights from signaling theory

Purpose This study aims to investigate how small and medium-sized enterprises (SMEs’) supply chain specific investment (SCSIs) affects supply chain financing performance (SCFP) in the innovative industrial finance model, and further analyze the internal mechanisms and important contextual factors. Design/methodology/approach Based on signaling theory, this study constructs a mediating and moderating model to examine the influencing mechanisms of SMEs’ SCSIs on SCFP, including the mediating effect of opportunism and the moderating effect of digital technology deployment (DTD). A multiple regression analysis is conducted to verify the theoretical hypotheses, using questionnaire data collected from 288 SMEs in China. Findings The empirical findings indicate that both SMEs’ supply chain asset-specific and relationship-specific investments can significantly promote SCFP. Also, SMEs’ SCSIs can improve SCFP by reducing the occurrence of opportunism perceived by supply chain partners. The breadth of DTD positively moderates the relationship between the two types of SCSIs and SCFP, while the depth of DTD has no significant moderating effect on the relationship between SCSIs and SCFP. Originality/value This study has discussed the important and novel issue of how financially distressed SMEs can send effective signals to financial institutions by increasing their SCSIs in supply chain finance mode. By revealing the influencing mechanisms of SMEs’ SCSIs on SCFP, this study contributes to expanding the research on the antecedents of SCFP from the dimension of interorganizational transactions. This study also enriches the perspectives of signaling theory by exploring the interaction between signal sender and signal intermediary.

Ride who’s coattails? How do high-tech enterprises pursue business legitimacy?

ABSTRACT The institutional theory suggested high-tech firms collaborate with reputed entities to gain legitimacy. However, the literature gave no guidance on how to select suitable reputed entities for high-tech firms pursuing legitimacy, high-tech firms are confused on ride who coattails. Drawing on signalling theory, we find that collaboration with research institutions has a stronger positive effect on business legitimacy than collaboration with the government. Competitive intensity and legal inefficiency asymmetrically affect the effect of collaboration with research institutions and collaboration with the government on business legitimacy. Our findings extend the literature on business legitimacy gaining.

EXPRESS: Signals for Success: the Intersection of Influencer Linguistic Personality, Content, and Follower Size

Influencers are a crucial strategic component for many brands because of their significant marketing value. This research integrates parasocial and signaling theories to posit that relationship-building signals and promotion-focused signals will differentially impact engagement with sponsored posts. The study investigates the role of linguistic personality and content characteristics in driving engagement on social media platforms, with a focus on how follower size moderates these effects. Text mining techniques are used to construct a data set of 961 sponsored posts from 71 influencers. Findings reveal that linguistic agreement, characteristics of the photo (whether the influencer and/or product appear), and of the text (hashtags and emojis) significantly influence engagement. Multiple facets of this influence are moderated by follower size. Specifically, agreeable language positively impacted engagement, while picturing the product and higher hashtag use negatively impacted engagement. Further, follower size moderated the effect of the variables on engagement such that influencers with larger followings benefit more from conscientious language, fewer hashtags, and inclusion of the influencer in the post photo. Influencers with smaller audiences benefit more from extraverted, agreeable, open, and emotionally stable language strategies. These insights offer practical implications for influencers and marketers, suggesting tailored strategies to optimize content.

Voluntary cybersecurity risk disclosures and firms’ characteristics: the moderating role of the knowledge-intensive industry

PurposeThis study examines voluntary cybersecurity risk disclosures (VCRD) by listed Indian companies. It also investigates how it relates to firm-specific characteristics such as size, leverage, profitability, liquidity, beta, market growth and industry.Design/methodology/approachThe extent of VCRD was measured by assessing the cumulative occurrence of cybersecurity risk keywords in the annual report of 100 listed Indian non-financial companies. Keyword extraction and occurrence counts were performed using Python software. A multiple regression analysis was applied to predict the characteristics of VCRD.FindingsThe results showed that the theoretical frameworks underpinned by agency and signalling theories continued to provide a valid explanation of VCRD by Indian companies. Specifically, the findings emphasized the importance of firm size, leverage, and beta as significant VCRD determinants. Additionally, the study found that knowledge-intensive industries had a favourable impact on the extent of VCRD.Research limitations/implicationsThis study is relevant because it informs company management, regulators and investors about the nature and characteristics of companies that satisfy stakeholder demands to prevent cyber breaches.Originality/valueUnderstanding disclosure characteristics is crucial from policy and regulatory perspectives. Studies on cybersecurity disclosures are related to developed economies such as the United States of America and Canada. This is the first study to explore this issue in a developing nation, in general, and in India, in particular, where cybersecurity risk disclosure has yet to be recognized.