Does Business Strategy Impact a Firm's Information Environment?

64 Pages Posted: 16 Oct 2012 Last revised: 14 Jul 2016

Kathleen A. Bentley-Goode

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 - Department of Accounting

Date Written: July 13, 2016

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 to defenders. Next, we examine the association between business strategy and information asymmetry. We find that despite prospectors having attributes associated with information asymmetry (R&D; growth options), prospectors appear to have lower information asymmetry than defenders. We attribute this finding to prospectors’ greater access to both internal and external sources of disclosure compared to defender firms. 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.

Keywords: business strategy, information asymmetry, information environment, voluntary disclosure

JEL Classification: D21, D80, L21, M41

Suggested Citation

Bentley-Goode, Kathleen A. and Omer, Thomas C. and Twedt, Brady J., Does Business Strategy Impact a Firm's Information Environment? (July 13, 2016). Available at SSRN: https://ssrn.com/abstract=2162240 or http://dx.doi.org/10.2139/ssrn.2162240

Kathleen Ann Bentley Goode

The University of New South Wales (UNSW) - School of Accounting ( email )

Sydney, NSW 2052
Australia
+61 2 9385 6930 (Phone)
+61 2 9385 5925 (Fax)

Thomas C. Omer (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Brady J. Twedt

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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