Great Expectations: The delisting of VC-backed firms and their influence on VC reputation

Considerable attention has been devoted to the antecedents of individual and organizational reputation, and its benefits. However, less attention has been paid to the mechanisms behind reputational damage, particularly indirect damage that can be caused by the failures of associated firms. In this study, we address this issue by examining negative spillovers in firm reputations following events that befall a related firm. Using the context of newly public firms, we ask whether and how delistings of venture capital (VC)-backed firms affect the reputations of VC firms. Drawing on literatures from expectancy violation and reputation spillover, we argue that endorsements by VC firms create stakeholders’ expectations of newly public ventures. As a result, when these new firms subsequently delist, their delisting can also damage the sponsoring VC’s reputation. That is, even in the absence of membership within a similar industry and the presence of contemporary ties, we empirically find that stakeholders’ expect...