Two Essays on the Strategic Aspects of Information Release
We study how the decision by management to release or withhold signals about firm value in industries with only a few top competitors depends not only on the company's own financial attributes but also on the strategic relationship among competitors in the industry. The first essay examines managers' decisions to release information in response to a competitor's action. Previous research in finance has theorized that management sends signals of firm value to the capital markets, i.e., investors, in order to inform them of either a positive or negative outlook ahead. However, in an industry with few, relevant competitors, managers of strategic firms may also send signals in order to prevent or disrupt competitor's actions with the intent of maximizing their own firm's long term financial health. We find that strategic firms in substitute industries tend to respond to competitor's actions with greater frequency than those firms in complement industries, and with greater frequency during the vulnerable period and not after than after the vulnerable period and not during. Also, for strategic firms in substitute industries, the empirical evidence supports the prediction that the wealth advantage of firms with managers that take action during a competitor's vulnerable period are positive during this time frame. The second essay examines managers' decisions to withhold positive signals of firm value. The dividend increase decision is examined with regard to firm specific attributes as well as the strategic industry relationship. A sample of top competitors in select industries which are expected to increase dividends based on the Lintner model are studied. We find that firms may make the dividend decision to pay or withhold based on idiosyncratic as well as strategic reasons in response to competitor actions. With further refinement of the sample, we find evidence of peer pressure. Firms in industries with only one top competitor have a greater tendency to increase the dividend the greater the number of competitor announcements. Also, when only dividend increases by competitors are considered, managers of agency infected firms in complement industries tend to withhold their dividend, and managers of substitute firms which are sequential optimizers tend to withhold their dividend. The long term returns of these two classes provide evidence that firms in complement industries which attempt to free-ride on competitors good news by withholding the dividend perform poorly in the future relative to those which increase the dividend, and those substitute firms which withhold dividends are no better off than those which increase the dividend.
Event Study, Information Transfer, Signal Jamming, Industry Relationships, Competitors
February 11, 2005.
A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy.
Includes bibliographical references.
James S. Ang, Professor Directing Dissertation; Thomas Zuehlke, Outside Committee Member; Gary Benesh, Committee Member; Bruce Billings, Committee Member.
Florida State University
This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s). The copyright in theses and dissertations completed at Florida State University is held by the students who author them.