Business Strategy and Intra-Industry Information Transfers

Abstract

This study examines whether business strategy affects information transfers from one firm to its industry peers. I use Miles and Snow's (1978, 2003) organizational typology to classify firms along a continuum with innovative 'prospector' firms at one end and stable low-growth 'defender' firms at the other. When a firm announces its earnings, the information transfer to other peer firms in the same industry is weaker (stronger) when the announcing firm is a prospector (defender). In addition, information transfers from the announcing firm to industry peers are weaker (stronger) when the industry peer is a prospector (defender). Taken together, the evidence in this paper suggests that firms' business strategies affect the strength of information transfers.

Intra-Industry Information Transfers and Firm Value: Evidence From Ghana’s Banking Industry

“…Gonen (2003) also explains contagion effect by the fact that the industry as a whole is previously unaware of the information revealed by the announcing firm, thereby causing a change in stock price to move in the same direction for the announcing firm and other firms in the same industry. Firth (1976), Baginski (1987), Lang and Stulz (1992), Otchere and Ross (2002), Gleason et al (2008), Guo (2017), and F. Chen et al (2018) are some of the several studies that have been conducted empirically to document the existence of intra-industry information transfer.…”

“…Intra-industry information transfers emanate from events happening in a firm that have an impact on other rivalry firms in the same industry. In other words, intra-industry information transfers are defined as the events in which the valuation of other firms is affected by the information about one firm in the same industry (Foster, 1981;Guo, 2017). This information signal experienced by other firms may result in a positive or negative direction in the change of stock prices between the announcing firms' and the non-announcing firms' values.…”