2020
Working Paper
HBS Working Paper Series

Category-spanning Entrants and Audience Valuation of Incumbents

Format:Print
| Language:English
| Pages:50

Abstract

Although previous work has examined how audiences evaluate category-spanning organizations, little is known about the conditions under which such spanners affect audience evaluations of other organizations. We posit that the emergence of new category-spanning entrants signals an altered future state—and seeds doubt about related incumbents’ future prospects within a re-ordered industry categorization scheme. We test this hypothesis using startup funding announcements as an information shock to investors evaluating incumbent financial service providers from 2010 to 2017—a period marked by atypical category combinations from FinTech startups. We find that announcements by startups that spanned unusual combinations of industry categories led to lower cumulative average returns for incumbents, compared to entry by typical startups. Our theory and results contribute to research on categorization in markets and to theories of disruptive innovation, industry evolution, and technology change.

Keywords

Category Spanning; Fintech; Industry Evolution; Industry Dynamics; Categories; Categorization; Organizational Theory; Technology Strategy; Disruptive Innovation; Business Startups; Information; System Shocks; Disruption; Technological Innovation; Financial Services Industry

Citation

McDonald, Rory M., and Ryan T. Allen. "Category-spanning Entrants and Audience Valuation of Incumbents." Harvard Business School Working Paper, No. 20-109, April 2020. (Revised November 2020.)