Signalling theory

Abstract: This paper investigates whether the voluntary disclosure of ratios in corporate annual reports can be explained by agency and signalling theory. The two theories are discussed and the applicability to explaining ratio disclosures considered. Drawing on agency and signalling theory, seven hypotheses are tested using data collected over five years, for 313 UK companies. More specifically, associations are considered between ratio disclosure and the following characteristics: company profitability; return on investment; gearing; liquidity; company efficiency; size and industry. The paper finds some evidence of an association between ratio disclosure and company performance, size and industry. The implications of these findings are considered and areas of further research discussed.

Abstract: Signalling and agency theories appear in the accounting literature to be competing theories. This article demonstrates that they are actually consistent theories, in that one set of sufficient conditions of signalling theory is at least consistent with one set of sufficient conditions of agency theory. Indeed, a considerable overlap exists between the two theories: rational behaviour is common to both; information asymmetry in signalling theory is implied by positive monitoring costs in agency theory; ‘quality' in signalling theory can be defined in terms of agency theory variables; and signalling costs are implicit in some bonding devices of agency theory. Examples are given where both theories’ predictions about lobbying, accounting choices, and voluntary auditor selection are added together.

Abstract: Entry into entrepreneurship is a strategic act for individuals who seek an optimal way to exploit their human, social and financial capital. Trade-offs associated with this choice are influenced by institutional conditions. We use signalling theory, employment choice theory and theory on strategic entry to develop hypotheses on the effect of business regulations and rule of law on strategic and non-strategic entrepreneurial entry. Analysing a six-year panel of 54 countries, we find lighter burden of regulation associated with a higher rate and relative prevalence of strategic entrepreneurial entry. Rule of law moderates this effect such that regulation has a significant effect on strategic entry only when rule of law is strong. These findings are robust against alternative proxies. Implications are drawn for prospective entrepreneurs, existing organisations, policy, and further research.

Abstract: Actors within organizations commonly must make choices armed with incomplete and asymmetrically distributed information. Signalling theory seeks to explain how individuals are able to do so. This theory's primary predictive mechanism is ‘separating equilibrium’, which occurs when a signal's expectations are confirmed through experience. A content analysis finds that most strategic management signalling theory studies have not fully leveraged separating equilibrium. This presents two possible paths for future research. First, some researchers may wish to incorporate separating equilibrium. We illustrate how doing so can uncover new relationships, generate novel insights, and fortify the theory's application. Others who want to theorize about signals, but not examine separating equilibrium, could integrate ideas from signalling theory with other information perspectives. Here a signal becomes one stimulus among many that corporate actors interpret and act upon. We provide research agendas so strategy scholars can apply signalling theory most effectively to meet their research objectives.

Abstract: Online crowdfunding means relying on the Internet to seek financial support from the general public. In this paper, we examine success factors in the social capital networks of the top 5000 most funded projects in Kickstarter.com at the time of this study. We first look at how fundraisers and backers identify themselves with the projects they support in their own social networks. This is modelled using Facebook friends and Facebook shares, respectively, guided by social identity theory. Secondly, we use signalling theory to investigate crowdfunding success based on backers’ and fundraisers’ ability to engage in a forum, modelled using the number of comments between them, or with unilateral signals using the number of updates from the fundraiser. This study suggests that funders and backers who identify themselves with the projects in their own social networks are associated with greater pledge/backer ratio. We also find that projects where the fundraiser and its backers exchange more signals in a ...