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Cheap Talk? Entrepreneurially-Oriented Shareholder Letters and Firm Value in Regulated Contexts

Abstract

Increasing attention has been devoted to firms’ entrepreneurial orientation (EO) as expressed in their communications with stakeholders. However, whether investors value entrepreneurially- oriented rhetoric is unclear. Building on signaling theory, we posit that entrepreneurially-oriented rhetoric may raise investor concerns when pre-entry uncertainties and post-entry risks are common, such as in regulated contexts. We analyze data of 109 health science firms operating in the U.S. during 2003-2012 and find a negative relationship between EO, as communicated in shareholder letters, and firm value. Nonetheless, stronger signals of entry commitment and social responsibility improve the effect of entrepreneurially- oriented rhetoric on firm value. These findings suggest that investors skeptically react to EO expressions by regulated firms, though quality signals may lessen their concerns with firms’ pre- entry uncertainties and post-entry risks.

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[Wang, Taiyuan] China Europe International Business School

[Malik, Sumeet] IE Business School

[Wales, William John] U. at Albany/SUNY


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ISSN:0065-0668

Year:2019

Issue:1

Volume:2019

Language:English

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