Does Business Strategy Impact a Firm’s Information Environment?

Abstract

This study examines whether a firm’s business strategy affects their information environment. Organizational theory suggests that firms following an innovative “prospector” strategy have greater incentives to provide more frequent voluntary disclosures than firms following an efficient “defender” strategy. Furthermore, prospectors are more likely to attract greater coverage by external information intermediaries. We find that prospectors engage in more frequent management earnings guidance, issue more press releases, and are followed by more financial analysts compared with defenders. Next, we examine the association between business strategy and information asymmetry. We find that despite prospectors having attributes associated with information asymmetry (e.g., R&D, growth options), prospectors have lower information asymmetry than defenders. We attribute this finding to prospectors’ greater access to both internal and external sources of disclosure compared with defender firms, which we confirm using mediation analysis. Collectively, our results suggest that business strategy does affect firms’ information environments, incremental to known determinants, and that strategy serves as a useful context for understanding a firm’s underlying information environment.

Business strategy, stock price informativeness, and analyst coverage efficiency

“…Business strategy is a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision‐making (Watkins, 2007). Recent research shows that business strategy plays an important role in setting firm policies and affecting firm risks, including financial reporting practices (Bentley, Omer, & Sharp, 2013), tax avoidance policies (Higgins, Omer, & Philips, 2015), over‐ and under‐investment decisions (Navissi, Sridharan, Khedmati, Lim, & Evdokimov, 2017), audit reporting quality (Bentley‐Goode, Newton, & Thompson, 2017), stock price crash risk (Habib & Hasan, 2017), information disclosures (Bentley‐Goode, Omer, & Twedt, 2018), and annual report readability (Lim, Chalmers, & Hanlon, 2018). We complement and extend this line of research by showing that business strategy affects stock price informativeness and analyst coverage efficiency.…”

“…Third, prospectors receive greater media coverage and more analyst following than defenders (Bentley‐Goode et al, 2018). Stock market visibility directly affects stock returns (Merton, 1987).…”

“…First, business strategy affects the quantity of firm disclosure. Bentley‐Goode et al (2018) report that prospectors make more frequent voluntary disclosures (e.g., management earnings forecast) and attract greater analyst coverage than defenders. Additionally, knowledge diffusions and information sharing along supply chains are important to innovation success (Azadegan & Dooley, 2010; Isaksson, Simeth, & Seifert, 2016; Primo & Amundson, 2002).…”

A Orientação Estratégica em PMEs: A relação entre Estrutura Organizacional e Geração de Conhecimento

“…Comumente, seu intuito é competir com base em preço, proteger o mercado que já possui e garantir sua continuidade Slater & Narver, 1995). Esta lógica não implica produtos ou serviços de má qualidade, mas busca principalmente a manutenção e estabilidade da organização (Bentley-Goode, Omer, & Twedt, 2019;Walker & Ruekert, 1987). Não por acaso, a OE A Orientação Estratégica em PMEs: A relação entre Estrutura Organizacional e Geração de Conhecimento ____________________________________________________________________________________ 403 Revista BASEv.17, n.3, julho/setembro 2020 defensora normalmente produz resultados organizacionais inferiores aqueles gerados pelos outros tipos estratégicos (Bagnoli & Vedovato, 2014).…”

Information transfer and firm‐level strategy

“…As business strategy is an underlying, firm-specific characteristic which has been shown to be related to firm investment choices, performance and information environment and is generic enough not to be industry specific, it provides an excellent opportunity to look for information transfer between firms in different industries (Porter, 1980(Porter, , 1985Balsam et al, 2010;Asdemir et al, 2013;Bentley et al, 2013;Bentley et al, 2014).…”