Stuart Hoang Hybels (1999) - Interorganizational Endorsements And The Performance Of Entrepreneurial Ventures

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Reference(s)

• Stuart, Toby E., Ha Hoang and Ralph C. Hybels (1999), "Interorganizational endorsements and the performance of entrepreneurial ventures", Administrative Science Quarterly, 44: 315-349 pdf

Abstract

This paper investigates how the interorganizational networks of young companies affect their ability to acquire the resources necessary for survival and growth. We propose that, faced with great uncertainty about the quality of young companies, third parties rely on the prominence of the affiliates of those companies to make judgments about their quality and that young companies "endorsed" by prominent exchange partners will perform better than otherwise comparable ventures that lack prominent associates. Results of an empirical examination of the rate of initial public offering (IPO) and the market capitalization at lP0 of the members of a large sample of venture-capital-backed biotechnology firms show that privately held biotech firms with prominent strategic alliance partners and organizational equity investors go to lP0 faster and earn greater valuations at lP0 than firms that lack such connections. We also empirically demonstrate that much of the benefit of having prominent affiliates stems from the transfer of status that is an inherent byproduct of interorganizational associations.