The Use of Signals in New-Venture Financing: A Review and Research Agenda

The use of signals to overcome information asymmetries and reduce the uncertainty inherent in resource acquisition has become a prominent theme in new-venture financing literature. In particular, the assessment of a wide range of different information signals, with the aim of conveying a venture’s quality and legitimacy to prospective investors, is receiving increased scholarly attention. With contributions from a broad spectrum of diverse research foci investigating interactions with distinct types of investors, the literature on entrepreneurial signaling in new-venture financing has become fragmented, and this is harming further development of the field. This study systematically reviews the different literature streams on entrepreneurial signaling to provide a more integrative framework, which can contribute to the cumulative and evidence-based body of knowledge about the role of entrepreneurial signaling in new-venture financing. Furthermore, the authors identify critical sender-, signal-, receiver-, and environment-related boundary conditions that influence the signaling effectiveness. In this way, the authors identify gaps in the existing literature and map directions for future research.