Title: The dynamics of firm industry-switching decision: learning from peers
Authors: Jing Jiang; Shaokang Wang
Addresses: Department of Economics and Finance, Sacred Heart University, Fairfield, CT 06825, USA ' Department of Finance Accounting and Management, Wilkes University, Wilkes-Barre, PA 18766, USA
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.
Keywords: industry-switching decision; managerial learning; learning from peers; information content.
International Journal of Economics and Business Research, 2021 Vol.22 No.1, pp.38 - 53
Received: 26 Aug 2019
Accepted: 09 Jun 2020
Published online: 16 Jul 2021 *