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Theory of the Dominant Firm: A Capital Market Test

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  • Schoderbek, Michael P

Abstract

This study provides a test of dominant firm theory by examining earnings-induced information transfer within industries that have a dominant firm. Based on the economic asymmetries between dominant and fringe firms, it is posited that the earnings announcements of dominant firms will act as an "industry bell," resulting in a positive association between the unexpected earnings of the dominant firm and the security price changes of the fringe firms. Due to their position as industry followers, the earnings announcements of the fringe firms are not expected to affect the security prices of the dominant firm. The results of empirical tests are general consistent with dominant firm theory. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Schoderbek, Michael P, 1995. "Theory of the Dominant Firm: A Capital Market Test," Review of Quantitative Finance and Accounting, Springer, vol. 5(3), pages 253-270, September.
    • Handle: RePEc:kap:rqfnac:v:5:y:1995:i:3:p:253-70
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    Cited by:

    1. Asthana, Sharad C. & Mishra, Birendra K., 2001. "The differential information hypothesis, firm size, and earnings information transfer: An empirical investigation," Journal of Business Research, Elsevier, vol. 53(1), pages 37-47, July.

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