Exploring the signaling effect of B Corp certification in entrepreneurial finance

The B Corp certification is the outcome of a voluntary third-party certification process and attests that a venture adheres to certain social and environmental standards. Using propensity score matching on a global dataset of 1231 B Corp certified ventures and 1231 comparable non-certified ventures, we examine how an initial B Corp certification influences a venture's likelihood of securing funding from entrepreneurial finance investors. Drawing on signaling theory, we find that the initial adoption of the B Corp certification significantly increases a venture's likelihood of securing funding. We further show that higher B Corp certification scores, indicative of higher signal strength, are more effective in attracting investments. Our findings remain robust when applying an instrumental variables approach, and when considering different types of investments and investors. Notably, our further analyses suggest that the effect of a B Corp certification is especially pronounced for attracting funding from impact investors. Overall, our results provide a nuanced understanding of how signaling and signal strength, through the adoption of a voluntary sustainability standard, influence the funding of entrepreneurial ventures and offer a set of practical implications.