Socially Situated Financial Markets A Neo-Behavioral Perspective on Firms, Investors and Practices
This dissertation begins with three interrelated premises: (1) that financial markets are socially situated, (2) that investor sentiment is socially constituted, and (3) our understanding of firm behavior vis-à-vis markets and investors will benefit from an explicit consideration of premises (1) and (2). This combination, which I term a neo-behavioral perspective, seeks to go beyond the methodological individualism of financial economics and behavioral finance to examine how a variety of institutional and socio-psychological factors affect firm, investor, and financial market behavior. Specifically, my dissertation employs an interdisciplinary and phenomenon-driven approach to study firms’ adoption of several novel corporate practices, along with the financial market (mis)evaluations of these firms and their practices.
The first two studies examine what have been termed “reverse mergers”, which represent a non-traditional pathway for private firms to become publicly traded. The first study addresses the diffusion of this novel practice, and suggests that diffusion and legitimacy may not proceed in tandem; in fact, I show how diffusion can be a source of contestation and a threat to legitimacy. The second study advances the notion that the degree to which investors engage in firm-based ethnic stereotyping and prejudiced reasoning is a threat to firms’ legitimacy and stock market evaluations. The third study investigates the conditions under which the use of ambiguous language in investor communication can generate positive market reactions. I do so by examining a unique Dutch phenomenon: a codified language scale that managers use to communicate corporate performance. The fourth study is a replication and critique of a study published in a leading finance journal, and lends support to recent efforts aimed at broadening the role and scope of replication studies in finance and management research.