We demonstrate that value creation language mediates the relationship between underwriter reputation and IPO performance. Specifically, underwriters’ reputation acts as an implicit signal to reduce information asymmetry because investors trust more reputable underwriters to discern the IPO firm’s ability to create value. In contrast, value creation language is an explicit signal that reduces information asymmetry by specifically describing how the IPO firm creates value. We show that more reputable underwriters affect the communication strategies of IPO firms by ensuring the IPO firms with whom they partner thoroughly articulate value creation language. Using signaling and resource dependence theories, we make theoretical contributions that help address the black box problem of under-specification in the reputation-performance relationship. We also make practical managerial contributions by demonstrating that underwriters influence the writing of IPO prospectuses to reduce information asymmetry and that IPO firms should consider using more value creation language to improve their IPO performance.
