Shared Fate: The Impact of Peer and Industry Characteristics on Peer Failure Experience and Investment Intensity

Abstract

Most studies on learning from failure have focused on the strategic incentives of a focal firm. We examine the relationship between peer failure and investment intensity from external actors’ point of view and argue that peer failure can be a negative signal to external actors due to a harm spill-over effect, restricting a firm’s actions. Our analysis of the U.S. movie industry shows that peer failure leads to a decrease in investment intensity, the relationship attenuated by peer recognition and industry growth. Our study highlights the role of external actors that shape a firm’s ability to learn and take action.