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Trouncing the weak: Rival earnings surprises, language signals, and firm competitive action.

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  • Additional Information
    • Abstract:
      Prior research in competitive dynamics has primarily analyzed how characteristics of rivals and their observable market actions influence a firm's level of competitive activities. Why and how firms take actions proactively is less well understood. Focusing on how a performance shortfall on the part of a firm can create opportunities for its rivals to improve their market positions and hence motivate those rivals to act, our study examines how a firm's negative earnings surprise can prompt its rivals to engage in higher levels of competitive activities. In addition, using computerized content analysis, we examined how the use of more complex and forward-looking language in firm communication during earnings conference calls can signal the firm's vulnerability and hence provide stronger incentives for its rivals to act. Using data from 3,382 earnings releases and conferences calls, we find robust evidence that firm competitive behavior is determined by not only rivals' observable competitive actions but also their performance shortfalls. We also find that the use of more complex and forward-looking language by rivals tends to strengthen the relationship between negative earnings surprises and rivals' increases in competitive activities. [ABSTRACT FROM AUTHOR]
    • Abstract:
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