Does Business Strategy Impact a Firm's Information Environment?
Kathleen A. Bentley
The University of New South Wales (UNSW) - School of Accounting
Thomas C. Omer
University of Nebraska at Lincoln - School of Accountancy
Brady J. Twedt
Indiana University - Kelley School of Business
April 4, 2014
This study links agency and organizational theories to examine whether a firm’s business strategy affects their financial information environment. On the one hand, firms following an innovation-oriented Prospector strategy are more likely to have attributes typically associated with information asymmetry (e.g., R&D and growth options) relative to industry peer firms following an efficiency-oriented Defender strategy. However, Prospectors are also hypothesized to have greater external and internal disclosure mechanisms (analyst and press coverage and voluntary disclosures) for reducing information asymmetry relative to Defenders, thus reflecting the complex interrelationships that a firm’s strategy may have on their overall information environment. We find that Prospectors are associated with higher levels of analyst and business press coverage, and issue more frequent voluntary disclosures compared to Defenders. We also find that Prospectors are associated with lower information asymmetry relative to Defenders. Our results suggest that business strategy does impact firms’ information environments. Furthermore, because a firm’s business strategy is generally constant over time, identifying a firm’s strategy may serve as a useful context for understanding the numerous interdependencies related to a firm’s information environment.
Number of Pages in PDF File: 43
Keywords: business strategy, information asymmetry, information environment, voluntary disclosure
JEL Classification: D21, D80, L21, M41working papers series
Date posted: October 16, 2012 ; Last revised: April 5, 2014
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