Signalling and Mimicry: The Evidence from Firm Goal Definition

This paper tests the mimicking propositions from signalling theory as they relate to stated firm objectives and firm performance. We classify the corporate objectives of a large sample of firms and evaluate firm performance relative to these objectives. We find that poorly performing firms more frequently cite shareholder wealth maximization as their primary objective than do better performing firms. There is no evidence that firms citing a shareholder wealth maximization objective perform any better than firms with alternative objectives. Similar evidence is found for other common corporate objectives. Overall, our results are consistent with signalling theory in that non‐enforceable signals, such as proclamations of corporate objectives, are not credible signals for investors.

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