{"title":"Mitigating information asymmetry to acquire venture capital financing for digital startups in China: The role of weak and strong signals","authors":"Yuxue Yang, Yulin Fang, Nianxin Wang, Xiang Su","doi":"10.1111/isj.12452","DOIUrl":null,"url":null,"abstract":"<p>This paper addresses how weak and strong signals affect venture capital funding acquired by digital startups at their early stage in various industries of China. We also articulate the interaction mechanism of these strong and weak signals by demonstrating their complementary or substitutive effects in alleviating information asymmetry on startup quality, which can help digital startups secure venture capital financing. Drawing on signalling theory and institutional legitimacy theory, we introduce application (app) downloads as a novel strong signal that can reduce market legitimacy concerns, and previous-round venture capitalist reputation as a traditional strong signal that mitigates regulatory legitimacy concerns. We treat founders' startup and IT experience as weak signals, as they provide rhetorical and indirect information indicating a startup's potential to establish regulatory and market legitimacy. The study empirically investigates our hypotheses using data of 163 digital startups in various industries of China. Results confirm the positive relationships between strong signals and venture capital funding secured by a digital startup. Furthermore, signals of similar strength are found to complement each other's effects in certain situations, while strong signals can reduce the effects of weak signals on a digital startup's financing performance under specific conditions that create these mixed effects. Implications for digital startup research and practice as well as limitations and suggestions for future research are discussed.</p>","PeriodicalId":48049,"journal":{"name":"Information Systems Journal","volume":null,"pages":null},"PeriodicalIF":6.5000,"publicationDate":"2023-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Information Systems Journal","FirstCategoryId":"91","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/isj.12452","RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"INFORMATION SCIENCE & LIBRARY SCIENCE","Score":null,"Total":0}
引用次数: 2
Abstract
This paper addresses how weak and strong signals affect venture capital funding acquired by digital startups at their early stage in various industries of China. We also articulate the interaction mechanism of these strong and weak signals by demonstrating their complementary or substitutive effects in alleviating information asymmetry on startup quality, which can help digital startups secure venture capital financing. Drawing on signalling theory and institutional legitimacy theory, we introduce application (app) downloads as a novel strong signal that can reduce market legitimacy concerns, and previous-round venture capitalist reputation as a traditional strong signal that mitigates regulatory legitimacy concerns. We treat founders' startup and IT experience as weak signals, as they provide rhetorical and indirect information indicating a startup's potential to establish regulatory and market legitimacy. The study empirically investigates our hypotheses using data of 163 digital startups in various industries of China. Results confirm the positive relationships between strong signals and venture capital funding secured by a digital startup. Furthermore, signals of similar strength are found to complement each other's effects in certain situations, while strong signals can reduce the effects of weak signals on a digital startup's financing performance under specific conditions that create these mixed effects. Implications for digital startup research and practice as well as limitations and suggestions for future research are discussed.
期刊介绍:
The Information Systems Journal (ISJ) is an international journal promoting the study of, and interest in, information systems. Articles are welcome on research, practice, experience, current issues and debates. The ISJ encourages submissions that reflect the wide and interdisciplinary nature of the subject and articles that integrate technological disciplines with social, contextual and management issues, based on research using appropriate research methods.The ISJ has particularly built its reputation by publishing qualitative research and it continues to welcome such papers. Quantitative research papers are also welcome but they need to emphasise the context of the research and the theoretical and practical implications of their findings.The ISJ does not publish purely technical papers.