The Stock Market Reaction to the Hiring of Management Consultants: A Signalling Theory Approach

Journal of Management Studies

Volumn 48, Issue 3, 2011, Pages 544-567

  Bergh, Donald D ^a   Gibbons, Patrick ^b  

^a UNIVERSITY OF DENVER   (United States)

^b UNIVERSITY COLLEGE DUBLIN   (Ireland)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 79953050983     PISSN: 00222380     EISSN: 14676486     Source Type: Journal    
DOI: 10.1111/j.1467-6486.2010.00957.x     Document Type: Article

References (112)

1. Abrahamson, E. (1996). 'Management fashion'. Academy of Management Review, 21, 254-86.
2. Akerlof, G. A. (1970). 'The market for lemons: qualitative uncertainty and the market mechanism'. Quarterly Journal of Economics, 84, 488-500.
3. Alexiev, A. A., Jansen, J., Van den Bosch, F. and Volberda, H. (2010). 'Top management team advice seeking and exploratory innovation: the moderating role of TMT heterogeneity'. Journal of Management Studies, 47, 1343-64.
4. Altman, E. I. (1968). 'Financial ratios, discriminant analysis and the prediction of corporate bankruptcy'. Journal of Finance, 23, 589-609.
5. Amit, R. and Schoemaker, P. (1993). 'Strategic assets and organizational rents'. Strategic Management Journal, 14, 33-45.
6. Armbruster, T. (2006). The Economics and Sociology of Management Consulting. New York: Cambridge University Press.
7. Barker, V. B. III and Duhaime, I. M. (1997). 'Strategic change in the turnaround process: theory and empirical evidence'. Strategic Management Journal, 18, 13-28.
8. Barney, J. B. (1986). 'Organizational culture: can it be a source of competitive advantage?'. Academy of Management Review, 11, 656-65.
9. Barney, J. B. (1991). 'Firm resources and sustained competitive advantage'. Journal of Management, 17, 99-120.
10. Barney, J. B. and Arikan, A. M. (2001). 'The resource-based view: origins and implications'. In Hitt, M. A., Freeman, R. E. and Harrison, J. S. (Eds), The Blackwell Handbook of Strategic Management. Oxford: Blackwell Publishers, 124-88.
11. Beatty, R. P. (1989). 'Auditor reputation and the pricing of initial public offerings'. Accounting Review, 64, 693-709.
12. Beatty, R. P., Bunsis, H. and Hand, J. R. M. (1998). 'The indirect economic penalties in SEC investigations of underwriters'. Journal of Financial Economics, 50, 151-86.
13. Bergh, D. D. (1995). 'Problems with repeated measures analysis: demonstration with a study of the diversification and performance relationship'. Academy of Management Journal, 38, 1692-708.
14. Bergh, D. D., Ketchen, D. J. Jr, Boyd, B. K. and Bergh, J. (2010). 'New theoretical frontiers of the reputation-performance relationship: a multiple theoretical perspective'. Journal of Management, 36, 620-32.
15. Biswas, S. and Twitchell, D. (2002). Management Consulting: A Complete Guide to the Industry. New York: Wiley.
16. Bourgeois, L. J. (1981). 'On the measurement of organizational slack'. Academy of Management Review, 6, 29-39.
17. Boyd, B. K., Bergh, D. D. and Ketchen, D. J. Jr (2010). 'Reconsidering the reputation-performance relationship: a resource-based view'. Journal of Management, 36, 588-609.
18. Bruton, G., Ahlstrom, D. and Wan, J. J. (2003). 'Turnaround in East Asian firms: evidence from ethnic overseas Chinese communities'. Strategic Management Journal, 24, 519-40.
19. Cantor, D. and Risen, C. (2002). Vault Guide to the Top 50 Consulting Firms. New York: Vault Inc. Available at: (accessed 1 July 2003).
20. Carter, R. B. and Manaster, S. (1990). 'Initial public offerings and underwriter reputation'. Journal of Finance, 45, 1045-67.
21. Carter, R. B., Dark, F. H. and Singh, H. K. (1998). 'Underwriter reputation, initial returns, and the long-run performance of IPO stocks'. Journal of Finance, 53, 285-311.
22. Chatterji, A. K. (2009). 'Spawned with a silver spoon? Entrepreneurial performance and innovation in the medical device industry'. Strategic Management Journal, 30, 185-206.
23. Clark, T. (1995). Managing Consultants. Buckingham: Open University Press.
24. Clark, T. and Fincham, R. (2002). Critical Consulting: New Perspectives on the Management Advice Industry. Oxford: Blackwell.
25. Cohen, B. D. and Dean, T. J. (2005). 'Information asymmetry and investor valuation of IPOs: top management team legitimacy as a capital market signal'. Strategic Management Journal, 26, 683-90.
26. Cohen, W. M. and Levinthal, D. A. (1990). 'Absorptive capacity: a new perspective on learning and innovation'. Administrative Science Quarterly, 35, 128-52.
27. Combs, J. G., Crook, T. R. and Shook, C. L. (2005). 'The dimensionality of organizational performance and its implications for strategic management research'. In Ketchen, D., Jr and Bergh, D. D. (Eds), Research Methodology in Strategic and Management. London: Elsevier, 2, 259-86.
28. Cyert, R. M. and March, J. G. (1963). A Behavioral Theory of the Firm. Englewood Cliffs, NJ: Prentice-Hall.
29. Dambolena, D., Khoury, I. G. and Sarkis, J. (1980). 'Ratio stability and corporate failure'. Journal of Finance, 35, 1017-26.
30. Deephouse, D. L. and Carter, S. M. (2005). 'An examination of differences between organizational legitimacy and organizational reputation'. Journal of Management Studies, 42, 329-60.
31. Dess, G. G., Ireland, R. D. and Hitt, M. A. (1990). 'Industry effects and strategic management research'. Journal of Management, 16, 7-28.
32. DiMaggio, P. J. and Powell, W. W. (1983). 'The iron cage revisited: institutional isomorphism and collective rationality in organizational fields'. American Sociological Review, 48, 147-60.
33. Dowling, G. R. (2001). Creating Corporate Reputations. New York: Oxford University Press.
34. Fama, E. (1965). 'The behavior of stock market prices'. Journal of Business, 38, 34-105.
35. Fama, E. and French, K. (1993). 'Common risk factors in the returns on bonds and stocks'. Journal of Financial Economics, 33, 3-53.
36. Flanagan, D. J. and O'Shaughnessy, K. C. (2005). 'The effect of layoffs on firm reputation'. Journal of Management, 31, 445-63.
37. Fombrun, C. J. (1996). Reputation: Realizing Value from the Corporate Image. Cambridge, MA: Harvard Business School Press.
38. Fombrun, C. J. and Shanley, M. (1990). 'What's in a name? Reputation-building and corporate strategy'. Academy of Management Journal, 33, 233-58.
39. Freeman, J. and Hannan, M. (1983). 'Niche width and the dynamics of organizational populations'. American Journal of Sociology, 40, 215-28.
40. Glucker, J. and Armbruster, T. (2003). 'Bridging uncertainty in management consulting: the mechanisms of trust and networked reputation'. Organization Studies, 24, 269-80.
41. Greiner, L. and Metzger, R. (1983). Consulting to Management. Englewood Cliffs, NJ: Prentice-Hall.
42. Haas, M. R. and Hansen, M. T. (2005). 'When using knowledge can hurt performance: the value of organizational capabilities in a management consulting company'. Strategic Management Journal, 26, 1-24.
43. Hall, R. (1992). 'The strategic analysis of intangible resources'. Strategic Management Journal, 13, 135-44.
44. Hall, R. (1993). 'A framework linking intangible resources and capabilities'. Strategic Management Journal, 14, 607-19.
45. Hansen, M., Perry, L. and Reese, C. (2004). 'A Bayesian operationalization of the resource-based view'. Strategic Management Journal, 25, 1279-96.
46. Higgins, M. and Gulati, R. (2003). 'Getting off to a good start: the effects of upper echelon affiliations on underwriter prestige'. Organization Science, 14, 24-263.
47. Holmstrom, B. (1985). 'The provision of services in a market economy'. In Inman, R. P. (Ed.), Managing the Service Economy: Problems and Prospects. Cambridge: Cambridge University Press.
48. Houston, M. B. (2003). 'Alliance partner reputation as a signal to the market: evidence from bank loan alliances'. Corporate Reputation Review, 5, 330-43.
49. Jacobsen, R. (1995). 'The persistence of abnormal economic returns'. Strategic Management Journal, 9, 415-30.
50. Jensen, M. (1978). 'Some anomalous evidence regarding market efficiency'. Journal of Financial Economics, 6, 95-101.
51. Johnson, G., Melin, L. and Whittington, R. (2003). 'Micro strategy and strategizing: towards an activity-based view'. Journal of Management Studies, 40, 3-9.
52. Johnston, J. (1963). 'The productivity of management consultants'. Journal of the Royal Statistical Society, 126, 237-49.
53. Karreman, D. and Rylander, A. (2008). 'Managing meaning through branding - the case of a consulting firm'. Organization Studies, 29, 103-11.
54. Kieser, A. (2002). 'On communication barriers between management science, consultancies and business organizations'. In Clark, T. and Fincham, R. (Eds), Critical Consulting: New Perspectives on the Management Advice Industry. Oxford: Blackwell, 206-27.
55. Kimberly, J. (1976). 'Organizational size and the structuralist perspective: a review, critique and proposal'. Administrative Science Quarterly, 21, 571-97.
56. Kipping, M. (1999). 'American management consulting companies in Western Europe, 1920-1990: products, reputation, and relationships'. Business History Review, 73, 190-220.
57. Kubr, M. (2002). Management Consulting: A Guide to the Profession. Geneva: International Labour Office.
58. Lane, P. J. and Lubatkin, M. (1998). 'Relative absorptive capacity and interorganizational learning'. Strategic Management Journal, 19, 461-77.
59. Lane, P. J., Koka, B. R. and Pathak, S. (2006). 'The reification of absorptive capacity: a critical review and rejuvenation of the construct'. Academy of Management Review, 31, 833-63.
60. Lee, P. M. (2001). 'What's in a name com? The effects of ".com" name changes on stock prices and trading activity'. Strategic Management Journal, 22, 793.
61. Levitas, E. and McFadyen, M. A. (2009). 'Managing liquidity in research-intensive firms: signaling and cash flow effects of patents and alliance activities'. Strategic Management Journal, 30, 659-78.
62. McDonald, M. L. and Westphal, J. D. (2003). 'Getting by with the advice of their friends: CEOs' advice networks and firms strategic responses to poor performance'. Administrative Science Quarterly, 48, 1-32.
63. McDonald, M. L., Khanna, P. and Westphal, J. D. (2008). 'Getting them to think outside the circle: corporate governance, CEOs' external advice networks, and firm performance'. Academy of Management Journal, 51, 453-75.
64. McGahan, A. and Porter, M. E. (1997). 'How much does industry matter, really?'. Strategic Management Journal, 18, 15-30.
65. McKenna, C. D. (1995). 'The origins of modern management consulting'. Business and Economic History, 24, 51-8.
66. McKenna, C. D. (2006). The World's Newest Profession: Management Consulting in the Twentieth Century. Cambridge: Cambridge Press.
67. McWilliams, A. and Siegel, D. (1997). 'Event studies in management research: theoretical and empirical issues'. Academy of Management Journal, 40, 626-57.
68. Micklethwait, J. and Wooldridge, A. (1996). The Witch Doctors. New York: Times Books.
69. Mills, P. K. (1986). Managing Service Industries. Cambridge: Cambridge Press.
70. Moskal, B. (1992). 'Don't shoot the consultants'. Industry Week, 241, 11-8.
71. Nayyar, P. R. (1990). 'Information asymmetries: a source of competitive advantage for diversified service firms'. Strategic Management Journal, 11, 513-9.
72. Nayyar, P. R. (1993). 'Stock market reaction to related diversification moves by service firms seeking benefits from information asymmetry and economies of scope'. Strategic Management Journal, 14, 569-92.
73. Nelson, P. (1970). 'Information and consumer behavior'. Journal of Political Economy, 78, 311-29.
74. Newbert, S. L. (2007). 'Empirical research on the resource-based view of the firm: an assessment and suggestions for future research'. Strategic Management Journal, 28, 121-47.
75. O'Shea, J. and Madigan, C. (1997). Dangerous Company: The Consulting Powerhouses and the Companies They Save and Ruin. New York: Random House.
76. Park, N. K. and Mezias, J. M. (2005). 'Before and after the technology sector crash: the effect of environmental munificence on stock market response to alliances to e-commerce firms'. Strategic Management Journal, 26, 987-1007.
77. Parker, P. M. (2005). The 2005-2010 World Outlook for Management Consulting Services. San Diego, CA: Ican Group.
78. Payne, A. F. T. (1986). 'New trends in the strategy consulting industry'. Journal of Business Strategy, 7, 43-55.
79. Peteraf, M. (1993). 'The cornerstones of competitive advantage: a resource-based view'. Strategic Management Journal, 14, 179-91.
80. Pinault, L. (2000). Consulting Demons. New York: HarperCollins.
81. Podolny, J. (1993). 'A status-based model of market competition'. American Journal of Sociology, 98, 829-72.
82. Podolny, J. (1994). 'Market uncertainty and the social character of economic exchange'. Administrative Science Quarterly, 39, 458-83.
83. Rao, H. (1994). 'The social construction of reputation: certification contests, legitimation, and the survival of organizations in the American automobile industry: 1895-1912'. Strategic Management Journal, 15, 29-44.
84. Rao, H., Qu, L. and Ruekert, R. W. (1999). 'Signaling unobservable product quality through a brand ally'. Journal of Marketing Research, 35, 277-95.
85. Rindova, V., Williamson, I., Petkova, A. and Sever, J. (2005). 'Being good or being known: an empirical examination of the dimensions, antecedents, and consequences of organizational reputation'. Academy of Management Journal, 48, 1033-50.
86. Robbins, K. and Pearce, J. III (1992). 'Turnaround: retrenchment and recovery'. Strategic Management Journal, 13, 287-309.
87. Roberts, P. W. and Dowling, G. R. (2002). 'Corporate reputation and sustained financial performance'. Strategic Management Journal, 23, 1077-94.
88. Roquebert, J. A., Phillips, R. L. and Westfall, P. A. (1996). 'Markets vs. management: what "drives" profitability?'. Strategic Management Journal, 17, 653-64.
89. Roth, A. V. and Jackson, W. E. III (1995). 'Strategic determinants of service quality and performance: evidence from the banking industry'. Management Science, 41, 1720-33.
90. Rumelt, R. P. (1991). 'How much does industry matter?'. Strategic Management Journal, 17, 653-64.
91. Rumelt, R. P., Schendel, D. E. and Teece, D. J. (1994). Fundamental Issues in Strategy: A Research Agenda. Cambridge, MA: Harvard Business School Press.
92. Samwick, A. A. and Prakash, A. (2003). 'The announcement and long-term effects of hiring a management consulting firm'. Unpublished Working Paper, Dartmouth University. Available at: (accessed 15 March 2010).
93. Sanders, W. G. and Boivie, S. (2004). 'Sorting things out: valuation of new firms in uncertain markets'. Strategic Management Journal, 25, 167-86.
94. Savary, M. (1999). 'Knowledge management and competition in the management consulting industry'. California Management Review, 41, 95-107.
95. Schaffer, R. H. (1997). High-Impact Consulting: How Clients and Consultants Can Leverage Rapid Results into Long-Term Gains. San Francisco, CA: Josey-Bass.
96. Simonin, B. and Ruth, J. (1998). 'Is a company known by the company it keeps? Assessing the spillover effects of brand alliances on consumer brand attitudes'. Journal of Marketing Research, 35, 30-42.
97. Solomon, A. L. (1997). 'Do consultants really add value to client firms?'. Business Horizons, 40, 67-72.
98. Spence, M. (1973). 'Job market signaling'. Quarterly Journal of Economics, 87, 355-79.
99. Spence, M. (1974). Market Signaling: Informational Transfer in Hiring and Related Processes. Cambridge, MA: Harvard University Press.
100. Spence, M. (2002). 'Signaling in retrospect and the informational structure of markets'. American Economic Review, 92, 434-59.
101. Stigler, G. J. (1961). 'The economies of information'. Journal of Political Economy, 69, 213-25.
102. Stiglitz, J. E. (1985). 'Information and economic analysis: a perspective'. Economic Journal, 95, 21-41.
103. Stuart, T., Hoang, H. and Hybels, R. (1999). 'Interorganizational endorsements and the performance of entrepreneurial ventures'. Administrative Science Quarterly, 44, 315-49.
104. Tolbert, P. and Zucker, L. (1983). 'Institutional sources of change in the formal structure of organizations: the diffusion of civil service reform, 1880-1935'. Administrative Science Quarterly, 28, 22-39.
105. Weigelt, K. and Camerer, C. (1988). 'Reputation and corporate strategy: a review of recent theory and applications'. Strategic Management Journal, 9, 443-54.
106. Wernerfelt, B. (1984). 'A resource-based view of the firm'. Strategic Management Journal, 5, 171-80.
107. Werr, A. and Stjernberg, T. (2003). 'Exploring management consulting firms as knowledge systems'. Organization Studies, 24, 881-908.
108. Whittington, R. (2001). The Practice of Strategy: A European Agenda. European Academy of Management Conference, Barcelona.
109. Wiggins, R. R. and Ruefli, T. (2002). 'Sustained competitive advantage: temporal dynamics and the incidence and persistence of superior economic performance'. Organization Science, 13, 82-105.
110. Winter, S. G. (1991). 'On Coase, competence, and the corporation'. In Williamson, O. E. and Winter, S. G. (Eds), The Nature of the Firm: Origins, Evolution and Development. Oxford: Oxford University Press, 179-95.
111. Yasai-Ardekani, M. (1989). 'Effects of environmental uncertainty and munificence on the relationship of context to organizational structure'. Academy of Management Journal, 32, 131-57.
112. Zahra, S. A. and George, G. (2002). 'Absorptive capacity: a review, reconceptualization and extension'. Academy of Management Review, 27, 185-203.