Despite extensive literature on financial institutions in firm valuation, we know little about how the market interprets the transition of investment professionals from evaluator roles to corporate leadership positions. Drawing on signaling theory, we propose that former investment professionals in Top Management Teams (TMTs) serve as distinctive quality signals for three reasons: their superior firm evaluation capabilities, the high costs associated with their career transitions, and their unique resonance with potential investors due to shared professional backgrounds. We further argue that this signaling effect varies with contextual factors. Specifically, technology-intensive industries inhibit investment professionals’ firm evaluation capabilities and diminish their signaling value, whereas financial slack enhances signal credibility by demonstrating their screening abilities and firms’ growth potential. Analysis of Chinese IPO firms supports our theoretical framework, advancing our understanding of how career transitions transform external evaluators into internal decision-makers, while illuminating important boundary conditions in signaling theory.
