Does Business Strategy Impact a Firm's Information Environment?
43 Pages Posted: 16 Oct 2012 Last revised: 27 Jul 2017
Date Written: July 26, 2017
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 (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 to 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.
Keywords: Business Strategy, Information Asymmetry, Information Environment, Voluntary Disclosure
JEL Classification: D21, D80, L21, M41
Suggested Citation: Suggested Citation