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  • Strategy Science

A Spanner in the Works: Category-Spanning Entrants and Audience Valuation of Incumbents

By: Rory McDonald and Ryan T. Allen
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Abstract

Previous work has examined how audiences evaluate category-spanning organizations, but little is known about how their entrance affects evaluations of other, proximate organizations. We posit that the emergence of category-spanning entrants signals the advent of an altered future state—and seeds doubt about incumbents’ prospects in a reordered industry-categorization scheme. We test this hypothesis by treating announcements of funding for startups as an information shock to investors evaluating incumbent financial-service providers between 2010 and 2017—a period marked by atypical category combinations at fintech startups. We find that announcements by startups that embodied unusual combinations of categories resulted in lower cumulative average returns for incumbents, both in absolute terms and in comparison to typical startups. Our theory and results contribute to research on categorization in markets and to theories of disruptive innovation and industry evolution.

Keywords

Emerging Industries; Industry Dynamics; Organization And Management Theory; Technology Strategy; Technology And Innovation Management; Entrepreneurship; Information Technology; Strategy; Management; Theory; Innovation and Management

Citation

McDonald, Rory, and Ryan T. Allen. "A Spanner in the Works: Category-Spanning Entrants and Audience Valuation of Incumbents." Strategy Science (forthcoming).
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About The Author

Rory M. McDonald

Technology and Operations Management
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More from the Authors
  • Disrupting Defense at Anduril Industries By: Rory McDonald, Timothy Buehn, Aditi Ghai and James Heffelfinger
  • Productive Tensions: How Every Leader Can Tackle Innovation's Toughest Trade-Offs By: Chris Bingham and Rory McDonald
  • The Past Is Prologue? Venture-Capital Syndicates' Collaborative Experience and Start-Up Exits By: Dan Wang, Emily Cox Pahnke and Rory McDonald
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