The Management Department
Department
Seminar Series
Ivana
Naumovska
INSEAD
Tuesday, May 28th 2019
Room N517 at 10:00 am
Theme: “WHEN
AN INDUSTRY PEER IS ACCUSED OF FINANCIAL MISCONDUCT: RECONCILING THE CONTAGION
AND COMPETITION EFFECTS ON BLAMELESS FIRMS”
Abstract: What are the performance
consequences for blameless firms when an industry peer is accused of corporate
misconduct? Research on corporate misconduct has revealed that accusations of
industry peers generate negative consequences to blameless firms (contagion
effect). In turn, research on competitive dynamics implies that such
accusations can benefit blameless firms that compete with these industry peers
(competition effect). We reconcile these perspectives by arguing that the
market value of a blameless firm is dually shaped by the contagion and
competition effects, depending on the extent of market overlap between the
accused industry peer and the blameless firm. Using fine-grained product data,
we analyze the stock market returns of 233 software firms following all the
accusations of financial misconduct by their industry peers in the course of a
decade. We demonstrate that the negative contagion effect increases with the
product market overlap between the accused and blameless firms, but only up to a
point, beyond which the positive competition effect becomes stronger. We
further show that the competition effect becomes relatively more pronounced,
the more fine-grained the market classification used to assess the market
overlap. Our study unpacks the heterogeneity of spillover effects across
blameless firms and enhances understanding of the interplay of contagion and
competition following misconduct by industry peers.
