Information spillovers, incumbency, and conservatism

David Dranove; Tommy Tan

doi:10.1016/0167-7187(90)90031-U

Information spillovers, incumbency, and conservatism

David Dranove^*, Tommy Tan

^*Corresponding author for this work

Strategy

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

This paper studies the relationship between the existing ventures of a firm and its incentives to undertake new ventures. We argue that whenever a firm undertakes a new venture, it does so with the risk that information associated with that venture will reflect on all of the firm's products. If the costs of bad news exceed the benefits of good news, the firm will be less likely to undertake the venture. This is the case in our model, in which an incumbent risks losing monopoly status in an established market should its new venture fail. Thus, incumbency can breed conservatism.

Original language	English (US)
Pages (from-to)	575-585
Number of pages	11
Journal	International Journal of Industrial Organization
Volume	8
Issue number	4
DOIs	https://doi.org/10.1016/0167-7187(90)90031-U
State	Published - Dec 1990

ASJC Scopus subject areas

Industrial relations
Aerospace Engineering
Economics and Econometrics
Economics, Econometrics and Finance (miscellaneous)
Strategy and Management
Industrial and Manufacturing Engineering

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10.1016/0167-7187(90)90031-U

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AB - This paper studies the relationship between the existing ventures of a firm and its incentives to undertake new ventures. We argue that whenever a firm undertakes a new venture, it does so with the risk that information associated with that venture will reflect on all of the firm's products. If the costs of bad news exceed the benefits of good news, the firm will be less likely to undertake the venture. This is the case in our model, in which an incumbent risks losing monopoly status in an established market should its new venture fail. Thus, incumbency can breed conservatism.

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Information spillovers, incumbency, and conservatism

Abstract

ASJC Scopus subject areas

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