Divergent Reactions to Convergent Strategies: Investor Beliefs and Analyst Reactions During Technological Change

Loading...
Thumbnail Image
Penn collection
Management Papers
Degree type
Discipline
Subject
industry convergence
strategy
technological change
innovation
institutional theory
analysts
investor beliefs
Organizational Behavior and Theory
Strategic Management Policy
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Benner, Mary J
Ranganathan, Ram
Contributor
Abstract

An important outcome of technological change is industry “convergence,” as a new technology spurs competition between established firms from different industries. We study the reactions of securities analysts, as important sources of institutional pressures for firms, to the similar product/market strategies undertaken by firms from different prior industries responding to industry convergence. Our empirical setting is the convergence between the wireline telecommunications and cable television industries in the period following the advent of voice over Internet protocol technology. Controlling for firm financial performance and capabilities, we find that analysts were consistently more positive toward the cable firms than toward the wireline telecom firms. Our findings further show that this divergence in reactions arises from differences in existing investor expectations and preferences concerning how firms create value; stocks owned by investors with a greater preference for growth receive more positive reactions than those owned by investors with a greater preference for margins. However, this divergence in reactions shrinks over time as convergence unfolds and as investors shift their shareholdings in response to misalignment between their preferences and firms' strategic changes. Reactions from analysts—reflecting inertial expectations of investors—may persist for a time despite changes to firms' strategies, thus creating challenges for some firms in responding to technological change and industry convergence while legitimating and enabling similar responses from their competitors.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2013-03-01
Journal title
Organization Science
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection