Flow Signals: How Patterns over Time Affect the Acceptance of Start-Up Firms

Journal of Marketing · 2008 · Volume 72 · Issue 5

Abstract

This study introduces the concept of flow signals—patterns of a firm's attributes over time—and contrasts them with point signals discussed in the literature to date. Three properties of flow signals are delineated: displacement, propensity, and reversals. The authors illustrate these properties using a start-up's research-and-development (R&D) spending and voluntary disclosure flows. The authors argue that the flow signal properties affect prospective customers’ perceptions of a start-up's current and future product quality, thus influencing their purchase likelihood and, ultimately, the start-up's growth in sales. The findings, obtained from panel data comprised of U.S. venture-backed firms that went public in 2001–2005, suggest that sales growth is positively affected by displacement and propensity of both R&D spending and voluntary disclosures and negatively affected by R&D spending reversals. Furthermore, these effects are stronger for the relatively younger start-ups.

Keywords

market signals, start-up firms, flow signals, information asymmetry, sales growth

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