Rivals’ Negative Earnings Surprises, Language Signals, and Firms’ Competitive Actions.

Wei Guo, Metin Sengul, Tieying Yu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

Research in competitive dynamics has primarily analyzed how characteristics of observable attacks influence firms’ competitive responses. Why and how firms take action in response to critical events that affect their rivals, without being attacked themselves, is less well understood. Focusing on negative earnings surprises, we argue that a focal firm is likely to view a rival’s negative earnings surprise as an opportunity to exploit its vulnerability. Therefore, such surprises are positively associated with the intensity of competitive actions initiated by a focal firm. Furthermore, the complexity and vagueness of a rival’s language in an earnings conference call strengthens the positive relationship between the negative earnings surprise and the focal firm’s intensity of competitive actions. We tested our arguments using data from 3,202 earnings releases and conferences calls of publicly listed firms between 2003 and 2014 in the United States. The results and robustness checks support our predictions.

Original languageEnglish
Pages (from-to)637
Number of pages659
JournalAcademy of Management Journal
Volume63
Issue number3
DOIs
Publication statusPublished - 1 Jun 2020

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