When the Market Misleads: Stock Prices, Firm Behavior, and Industry Evolution

When the Market Misleads: Stock Prices, Firm Behavior, and Industry Evolution

This paper augments learning and institutional theories of firm behavior with an explicit focus on the idiosyncratic characteristics of learning from financial markets. Various streams of literature implicitly assume that financial markets influence firm strategies, yet the specifics of these intera...

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Veröffentlicht in:Organization Science. - Institute for Operations Research and the Management Sciences. - 16(2005), 6, Seite 637-660
1. Verfasser: Kock, Carl Joachim (VerfasserIn)
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 2005
Zugriff auf das übergeordnete Werk:Organization Science
Schlagworte:Organizational learning Institutional theory Financial markets Computer simulation Economics Behavioral sciences Business
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520 |a This paper augments learning and institutional theories of firm behavior with an explicit focus on the idiosyncratic characteristics of learning from financial markets. Various streams of literature implicitly assume that financial markets influence firm strategies, yet the specifics of these interactions are not well specified. Motivated by a case study of the retail brokerage industry, this study proposes three particular characteristics of learning from financial markets. First, there is vicarious learning from outcomes (e.g., stock valuations), yet this has characteristics that are more similar to institutional forms of mimetic isomorphism. Second, the forward-looking and complex nature of financial valuations incites a paradoxically simplified type of crude heuristic learning. Third, there is a mutual and simultaneous learning process in that firms learn from financial markets, which in turn are themselves in a process of social construction. This combination of special characteristics suggests a number of learning pathologies that center around an increasing likelihood (compared with other types of learning and adaptation) of falling prey to misleading signals. A computer simulation, based on a model in which Cournot duopolists play a multistage game involving investment and cost reduction, explores the implications of these characteristics and pathologies in a systematic way. 
540 |a Copyright 2005 INFORMS 
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650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Cognitive processes  |x Learning  |x Observational learning 
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650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Cognitive processes  |x Learning 
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650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial investments  |x Investors 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial instruments  |x Financial securities  |x Capital stocks  |x Stock prices 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Financial markets 
650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Cognitive processes  |x Learning  |x Learning rate 
650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Cognitive processes  |x Learning  |x Observational learning 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial investments 
650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Cognitive processes  |x Learning 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial investments  |x Investment value 
650 4 |a Business  |x Industry  |x Industrial sectors  |x Service industries  |x Financial services industries  |x Brokerage industry 
650 4 |a Economics  |x Economic disciplines  |x Consumer economics  |x Consumer sectors  |x Industrial market 
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