Signaling Through Insider Ownership: Interaction and Time Effects in Technology Acquisitions
Journal article, Peer reviewed
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Many authors have pointed to the strength of insider ownership as a signal in environments with high information asymmetries. Despite the assumed potential of insider ownership, studies in several contexts have provided inconclusive results. As we contend in this paper, the lack of agreement on this signal is caused by contingency and time effects which have largely been neglected in the signaling literature. By consequence, we study the impact of insider ownership in a context characterized by high levels of uncertainty, namely that of academic spin-offs. Particularly, building on signaling theory, we study the relationship between insider ownership and likelihood of acquisition, hereby taking into consideration that the impact of the signal is affected by ownership-related contingency factors and time effects. We pursue our research objectives using the total population of 370 Norwegian spin-offs founded between 1999 and 2011, of which 32 were acquired. Applying discrete event history analysis, our findings show that the relationship between insider ownership and acquisition likelihood is reinforced by the presence of professional investors as shareholders. Furthermore, this interaction effect is strengthened over time, with professional investor ownership particularly enforcing insider ownership effects as the venture matures. We discuss implications for theory and practice.