Corporate Disclosure and Operational Strategy: Financial vs. Operational Success

Mehmet Ozbilgin () and Mark Penno ()
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Mehmet Ozbilgin: Zicklin School of Business, Baruch College, City University of New York, One Bernard Baruch Way, New York, New York 10010
Mark Penno: Tippie College of Business, The University of Iowa, 108 John Pappajohn Business Building, Iowa City, Iowa 52242-1000

Management Science, 2005, vol. 51, issue 6, 920-931

Abstract: We introduce a simple game between two rival firms---a leader and a follower, where the leader moves first and makes an operational choice under uncertainty. The leader's disclosure of its resulting financial success or failure may in turn give the follower a competitive advantage by informing its operational choice. When this occurs, the leader reacts by sometimes making an operational choice that it knows to be less likely to produce operational success than the alternative. This makes the financial report less useful to the follower and expected financial success more likely for the leader. Alternatively, when the financial report does not provide useful information to the follower (e.g., the financial report aggregates many activities in addition to the activity the follower is interested in), it may be the follower rather than the leader who makes the choice less likely to be operationally successful. We document that when trading off operational success for financial success, the leader's aim is operational unpredictability, while the follower's aim is coordination. As such, this paper highlights the intricate interplay between internal operational decisions, public inferences concerning those decisions, and different forms of success under intense competition.

Keywords: operational efficiency; competitive advantage; financial disclosure (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (1)

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