Financial Implications of Local and Nonlocal Rival Isomorphism: A Signaling Paradox. (November 2013)

• Record Type: Journal Article
• Authors: Miller, Stewart Robert; Indro, Daniel C.; Richards, Malika; Chng, Daniel Han Ming
• Is Part Of: Journal of management. Volume 39:Number 7(2013)
• Page Start: 1979
• Page End: 2008
• Publication Date: 2013-11
• Subjects: isomorphism -- signaling -- rival groups -- performance -- underpricing; Management -- Periodicals; 658.005
• DOI: 10.1177/0149206313493323
• Languages: English
• ISSNs: 0149-2063

Abstract

We develop an isomorphism-signaling framework to explain the likelihood of isomorphic behavior (and nonconformity) by a focal firm toward local rivals and nonlocal rivals and then predict financial performance associated with the action. In the presence of asymmetric information, we predict a causal relationship between rival isomorphism and financial performance that reveals a paradox—that is, we theorize and show conditions in which "conforming" reflected by rival isomorphic behavior is a signal that "separates" high-quality from low-quality firms. We consider a firm's costs and benefits of local and nonlocal rival isomorphism and assert that a firm can signal its quality, which affects financial performance of the equity offering. We test and find support for our hypotheses using a sample of firms raising capital abroad from 1994 to 2005.