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

Mary J. Benner () and Ram Ranganathan ()
Additional contact information
Mary J. Benner: Strategic Management and Organization, Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
Ram Ranganathan: Management Department, McCombs School of Business, University of Texas at Austin, Austin, Texas 78712

Organization Science, 2013, vol. 24, issue 2, 378-394

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.

Keywords: industry convergence; strategy; technological change; innovation; institutional theory; analysts; investor beliefs (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://dx.doi.org/10.1287/orsc.1120.0755 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:24:y:2013:i:2:p:378-394

Access Statistics for this article

More articles in Organization Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().