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Research Details

Information Spillovers, Incumbency, and Conservatism, International Journal of Industrial Organization

Abstract

This paper studies the relationship between the existing ventures of a firm and its incentives to undertake new ventures. We argue that whenever a firm undertakes a new venture, it does so with the risk that information associated with that venture will reflect on all of the firm's products. If the costs of bad news exceed the benefits of good news, the firm will be less likely to undertake the venture. This is the case in our model, in which an incumbent risks losing monopoly status in an established market should its new venture fail. Thus, incumbency can breed conservatism.

Type

Article

Author(s)

David Dranove

Date Published

1990

Citations

Dranove, David. 1990. Information Spillovers, Incumbency, and Conservatism. International Journal of Industrial Organization. 8(4): 575-585.

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