The Social Construction of Legitimacy Through Signaling Social Capital: Exploring the Conditional Value of Alliances and Underwriters at IPO

Focusing on a firm's signaling of social capital through their alliances, we explore how socially constructed signals convey legitimacy and enable greater initial public offering (IPO) proceeds. We examine the concepts of absolute and relative social capital signals with a sample of 266 biotechnology IPOs from 1980 through 2006. Leveraging a dynamic framework, we uncover that the interpretations of quality signals vary over time and are nonadditive; rather, affiliating with prestigious underwriters limits the positive reward of signaling alliance-based social capital. These relationships vary according to whether social capital is evaluated relative to the industry norms and according to the alliance's vertical position.