Journal Article

Flow Signals: How Patterns over Time Affect the Acceptance of Start-Up Firms

Kohli, Ajay K, DeKinder, Jade S

2008

Overview

This study introduces the concept of flow signals - patterns of a firm's attributes over time - and contrasts them with point signals discussed in the literature to date. Three properties of flow signals are delineated: displacement, propensity, and reversals. The authors illustrate these properties using a start-up's research-and-development (R&D) spending and voluntary disclosure flows. The authors argue that the flow signal properties affect prospective customers' perceptions of a start-up's current and future product quality, thus influencing their purchase likelihood and, ultimately, the start-up's growth in sales. The findings, obtained from panel data comprised of U.S. venture-backed firms that went public in 2001-2005, suggest that sales growth is positively affected by displacement and propensity of both R&D spending and voluntary disclosures and negatively affected by R&D spending reversals. Furthermore, these effects are stronger for the relatively younger start-ups. [PUBLICATION ABSTRACT]

• Publisher: SAGE PUBLICATIONS, INC
• Subject: Disclosure / Impact analysis / Perceptions / Research & development expenditures / Startups / Studies