Information spillovers, incumbency, and conservatism

David Dranove*, Tommy Tan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-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 languageEnglish (US)
Pages (from-to)575-585
Number of pages11
JournalInternational Journal of Industrial Organization
Volume8
Issue number4
DOIs
StatePublished - 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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