When does cheap talk help new firms? Effects of unrealized performance on resource attraction in new private equity firms


Speaker


Abstract

Past research has shown that new firms can facilitate resource attraction in a variety of ways, for instance by affiliating with prominent others or by adopting subtle strategies of persuasion. In this study, we ask whether new firms can facilitate resource attraction in a simpler, more straightforward way—through non-binding, non-verifiable claims, or “cheap talk.” Specifically, we propose that new firms that communicate higher levels of unrealized performance are more likely to attract resources from investors. We further argue that this effect is moderated by firm characteristics. Empirically, we conduct a longitudinal analysis examining the ability of 222 new private equity (PE) firms to raise a follow-on fund. Our findings deepen our understanding of how new firms attract resources.