The Dynamics of Firm Industry-Switching Decision: Learning From Peers

Document Type

Peer-Reviewed Article

Publication Date

2021

Abstract

We run logistic regressions on US firms from 1987 to 2015 to investigate the industry-switching decisions under four industry classifications. Our findings show firms enter new industries following positive abnormal returns in those industries. Managers assign greater weights to peer valuation when the information content in peer prices is larger and vice versa. Matching sample analysis also confirms our finding. The evidence is consistent with the learning from peer hypothesis. Higher peer valuation in the new industry signals better outlook in that market. Managers incorporate peer valuation into their information set, and it increases the probability of an industry-switching decision.

Comments

Published online June 15, 2021.

DOI

10.1504/IJEBR.2021.116298

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