Signaling corporate strategy in IPO communication: a study of biotechnology IPOs on the NASDAQ.

There are some limitations in this research. We investigated only IPO prospectuses and ignored other communication devices such as press releases and media reports around the IPO event. Other devices may have an important role to play at the time of the IPO, particularly in supporting the strategic information communicated in IPO prospectuses. Furthermore, we chose the Miles and Snow typology; other strategy frameworks such as the Ansoff typology, Porter typology, or Mintzberg typology might also provide promising insights. In addition, although a single industry study (biotechnology) over a 6-year period allows for a thorough examination in one context, it also limits the generalization of the results from this research. Measures of all three dimensions--clarity, intensity, and consistency--are narrowly defined with respect to content and specifically do not address format characteristics, such as color, heading styles, and the graphic design aesthetics. Finally, the relatively low [R.sup.2] of the best model, Model (5), at 0.18, indicates that there may be other important explanatory variables not included in our model specifications. These limitations can be addressed and accommodated in further research on this topic.

Notwithstanding these limitations, this research makes several important contributions for both academics and practitioners. The research applies market-signaling theory, combined with a corporate strategy typology, to identify important strategic information for reducing the market uncertainty and IPO underpricing. This article establishes and operationalizes multiple indices based on the Miles and Snow typology to capture corporate strategy from the content analysis of public documents. This may provide some insights for further studies on corporate strategy. Furthermore, the research also assesses the quality of strategy signals with measures of clarity, intensity, and consistency and particularly highlights the importance of signal consistency when assessing the quality of multidimensional signals. This approach can be useful for future communication studies.

This study also distinguishes 1st-day and 30-day initial returns (underpricing). By taking a slightly longer term view, 30-day underpricing may be a useful indicator of a credible strategic communication in the IPO communication process.

This research suggests that those charged with IPO communications place importance on the consistent disclosure in relation to the firm's strategy intentions (e.g., prospector, analyzer, and defender). Specifically, in the biotechnology industry, if the firm attempts to reduce the 30-day underpricing (i.e., reduce the need to discount the offer price to attract prospector-centered investors before an IPO communication), they may need to consistently communicate their prospector intentions across all three important dimensions--product/market, technology, and administration. By contrast, if the firm attempts to increase the 30-day underpricing (i.e., attract the defender strategy-centered investors before an IPO communication), firms may need to consistently indicate their defender strategic intentions across dimensions in their public documents.

REFERENCES

Ansoff, H. I. (1965). Corporate strategy: An analytical approach to business policy for growth and expansion. New York: McGraw-Hill.

Azarmi, T. (2002). Corporate put strategy. Journal of American Academy of Business, 1(2), 215-216.

Baruch, L. (1992). Information disclosure strategy. California Management Review, 34(4), 9-30.

Beattie, V. (1999). Business reporting: The inevitable change. Edinburgh: Institute of Charter Accountant of Scotland.

Beatty, R. E, & Ritter, J. R. (1986). Investment banking, reputation, and the under-pricing of initial public offerings. Journal of Financial Economics, 15, 213-232.

Bhabra, H. S., & Pettway, R. H. (2003). IPO prospectus information and subsequent performance. Financial Review, 38(3), 369-397.

Brown, L. (1997). Competitive marketing strategy: Dynamic and maneuvering for competitive position. Melbourne: Thomas Nelson Australia.

Bukh, E N., Nielsen, C., Gormsen, E, & Mouritsen, J. (2002). Disclosure of intellectual capital indicators in Danish IPO prospectuses. Denmark: Aarhus School of Business and Copenhagen Business School.

Burgi, E, & Roos, J. (2003). Images of strategy. European Management Journal, 21(1), 69-78.

Carter, R. B., Dark, E H., & Singh, A. K. (1998). Underwriter reputation, initial returns, and the long-run performance of IPO stocks. Journal of Finance, 53(1), 285-311.

Certo, S. T. (2003). Influencing initial public offering investors with prestige: Signaling with board structures. Academy of Management Review, 28, 432-446.

Certo, S. T., Daily, C. M., & Dalton, D. R. (2001). Signaling firm value through board structure: An investigation of initial public offerings. Entrepreneurship Theory and Practice, 26(2), 33-50.

Cohen, B. D., & Dean, T. J. (2001). Top management teams and investors' valuation of initial public offerings: An examination of web-based and non-web-based new ventures. Frontiers of Entrepreneurship Research. Retrieved from http://www.babson.edu/entrep/fer/Babson2001/ XX/XXA/XXA.htm

Conant, J. S., Mokwa, M. P., & Varadarajan, E R. (1990). Strategy types, distinctive marketing competencies and organizational performance: A multiple measures-based study. Strategic Management Journal, 11,365-383.

Cumby, J., & Conrod, J. (2001). Non-financial performance measures in the Canadian biotechnology industry. Journal of Intellectual Capital, 2(3), 261-272.

Daily, C. M., Certo, S. T., Dalton, D. R., & Roengpitya, R. (2003). IPO underpricing: A meta-analysis and research synthesis. Entrepreneurship Theory and Practice, 28, 271-295.

Day, G. S., & Fahey, L. (1990). Putting strategy into shareholder value analysis. Harvard Business Review, 68(2), 156-162.

Deeds, D. L., DeCarolis, D., & Coombs, J. E. (1997). The impact of firm-specific capabilities on the amount of capital raised in an initial public offering: Evidence from the biotechnology industry. Journal of Business Venturing, 12, 31-46.

Desai, A. B. (2000). Does strategic planning create value? The stock market's belief. Management Decision, 38(10), 685-693.

Doty, D. H., Glick, W. H., & Huber, G. R (1993). Fit, equifinality, and organizational effectiveness: A test of two configurational theories. Academy of Management Journal, 36(6), 1196-1250.

Durukan, M. B. (2002). The relationship between IPO returns and factors influencing IPO performance: The case of Istanbul stock exchange. Managerial Finance, 28(2), 18-38.

Eccles, R. G., Hertz, R. H., Keegan, E. M., & Philips, D. M. (2001). The value reporting revolution: Moving beyond the earning game. New York: John Wiley.

Efron, B. (Ed.). (1982). The jackknife, the bootstrap and other resampling plans (6th ed., Vol. 38). Philadelphia: Society for Industrial and Applied Mathematics.

Eliashberg, J., & Robertson, T. S. (1988). New product preannouncing behavior: A market signaling study. Journal of Marketing Research, 25, 282-292.

Engers, M. (1987). Signaling with many signals. Econometrica, 55(3), 663-674.

Finkle, T. A., & Lamb, R. E (2002). A comparative analysis of the performance of emerging v. nonemerging industry initial public offerings. New England Journal of Entrepreneurship, 5(1), 27.

Goold, M., Campbell, A., & Alexander, M. (1994). How corporate parents add value to the stand-alone performance of their businesses. Business Strategy Review, 5(4), 33-56.

Hair, J. E, Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis (5th ed.). Upper Saddle River, NJ: Prentice Hall.

Hambrick, D. C. (1983). Some tests of the effectiveness and functional attributes of Miles and Snow's strategic types. Academy of Management Journal, 26, 5-26.

Heil, O., & Robertson, T. S. (1991). Towards a theory of competitive market signaling: A research agenda. Strategic Management Journal, 12(6), 403-418.

Higgins, R. B., & Bannister, B. D. (1992). How corporate communication of strategy affects share price. Long Range Planning, 25(3), 27-35.

Higgins, R. B., & Diffenbach, J. (1985). The impact of strategic planning on stock price. Journal of Business Strategy, 6(2), 64-72.

Higgins, R. B., & Diffenbach, J. (1989). Communicating corporate strategy: The payoffs and the risks. Long Range Planning, 22(3), 133-139.

Ibbotson, R. G. (1975). Price performance of common stock new issues. Journal of Financial Economics, 2(3), 235-272.

Ibbotson, R. G., Sindelar, J. L., & Ritter, J. R. (1988). Initial public offerings. Journal of Applied Corporate Finance, 1(2), 37-45.

Lynch, R. (2000). Corporate strategy. London: Prentice Hall.

Marino, K. E., Castaldi, R. M., & Dollinger, M. J. (1989). Content analysis in entrepreneurship research: The case of initial public offerings. Entrepreneurship Theory and Practice, 14(1), 51-66.

McDaniel, S. W., & Kolari, J. W. (1987). Marketing strategy implications of the Miles and Snow strategic typology. Journal of Marketing, 51(4), 19-30.

Meek, G. K., Roberts, C. B., & Gray, S. J. (1995). Factors influencing voluntary annual report disclosures by U.S. and U.K. and continental European multinational corporations. Journal of International Business Studies, 26, 555-572.

Megginson, W. L., & Weiss, K. A. (1991). Venture capitalist certification in initial public offerings. Journal of Finance, 46(3), 879-903.

Miles, R. E., & Snow, C. C. (1978). Organizational strategy, structure and process. New York: McGraw-Hill.