University of Southern California Dissertations and Theses

Essays on strategic categorization

(USC Thesis Other)

Essays on strategic categorization

PDF

Download a page range

Download transcript

Copy asset link

Request this asset

Transcript (if available)

Content

ESSAYS ON STRATEGIC CATEGORIZATION

by

Eunice Yunjin Rhee

A Dissertation Presented to the
FACULTY OF THE USC GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(BUSINESS ADMINISTRATION)

December 2014

ii

ACKNOWLEDGEMENTS
I would like to express my sincere gratitude to my advisor and committee chair,
Peer Fiss, and my committee members, Nandini Rajagopalan, Peter Monge, and Feung
Zhu. Your continuous encouragement and insightful feedback and advice have made this
journey possible. Especially, I am very fortunate that I had the chance to be Peer’s first
doctoral student, and I always think how lucky I have been to work with and learn from
him. He has been an amazing mentor who has not only guided me through my doctoral
studies but has also served as a role model by showing me what a true academic and
scholar is. I could not thank Peer more for all his support, guidance, and encouragement.
I would also like to thank other faculty members in the Management and
Organization Department for their valuable advice, feedback, and inspiration throughout
the PhD program: Arvind Bhambri, Paul Adler, Victor Bennet, Tom Cummings, Nan Jia,
Kyle Mayer, Yongwook Paik, Kelly Patterson, Cheryl Wakslak, and Lori Yue. I would
also like to express my gratitude to Jay Kim, who is now at INSEAD, and Mark Kennedy
who is now at Imperial College. I would also like to thank my fellow PhD students,
although I wasn’t on campus very often. I would especially like to thank my cohort,
during those early days in the program: Aniket Aga, who has since switched gears to
become an anthropologist, and Adam Wood.
I am also very grateful to Jaeyong Song, my advisor at Yonsei and later at Seoul
National University, who has opened up my eyes to academic research and has guided
and supported me ever since. If I had not taken the strategy course with him during my
last semester at Yonsei, I would have not considered pursuing a career in academia.
iii

Generous financial support made this research possible. Besides the Marshall
School of Business, which provided five years of support as well as the Dean’s
Fellowship throughout my doctoral studies, I appreciate Strategy Research Foundation
(SRF) for the inaugural Dissertation Grant and the NASDAQ OMX Educational
Foundation for the Dissertation Fellowship.
Needless to say, my infinite gratitude and love goes to my family for all their
unconditional love and support. I would like to thank my parents, Dr. Eon Ku Rhee and
Jin Seok Youn, who have always encouraged me to find my own path, although on my
journey I ended up following in their footsteps. Thank you for providing me with
boundless opportunities. I would also like to thank my brother, Inbok Rhee, for his
support and wish him the best in completing his own PhD. I would like to add something
for my lovely daughter, Lena, so that she does not complain I missed her when she learns
how to read: Thank you for coming into the world and bringing such joy and love. It
might have taken longer to complete the dissertation, but in the end, you always made my
day. Last but not least, I would like to thank my husband, Woosung Ahn, for his love,
understanding, and complete support. Thank you for being my sounding board, putting
up with my whining, being an excellent babysitter for all the travelling, and just always
being there for me. Without your support, encouragement, and love, I would have never
been able to finish this dissertation.

iv

TABLE OF CONTENTS
Acknowledgements ............................................................................................................. ii
List of Tables .................................................................................................................... vii
List of Figures .................................................................................................................. viii
Abstract .............................................................................................................................. ix
ESSAYS ON STRATEGIC CATEGORIZATION ............................................................ 1
Introduction .................................................................................................................... 1
Essay 1: Theoretical Framework of Strategic Categorization ................................ 2
Essay 2: Empirical Investigation of Strategic Categorization ................................ 4
ESSAY 1: Categorization Work: Toward an Understanding of Strategic Categorization . 8
Abstract .......................................................................................................................... 8
Categories and Categorization in and Around Organizations .......................................14
Categorization as a Sensemaking Tool ..................................................................14
Categorization as an Imperative.............................................................................15
Theoretical Foundations of Strategic Categorization Research ....................................18
Bridging the Sociological and Cognitive Psychological Perspectives ..................19
Organizational Identity, Categorical Claims, and Identity Management ......................21
Organizational Identity as Categorical Claims ......................................................22
Use of Categorical Claims in Managing Identity ..................................................25
Strategic Categorization: Definition .............................................................................28
Strategic Categorization and Label-based Framing ...............................................29
Strategic Categorization: Process and Implications ......................................................31
v

Motives for Strategic Categorization .....................................................................32
Types of Strategic Categorization ..........................................................................34
Modes of Strategic Categorization .........................................................................37
Ambiguity as a Strategic Categorization Device ..........................................................41
Forms and Functions of Ambiguity .......................................................................42
Enabling Conditions of Ambiguity-based Strategic Categorization ......................46
Discussion and Conclusion ...........................................................................................51
Future Research Directions ....................................................................................53
ESSAY 2: Managing Categories: Categorical Sensegiving by Vertical and Horizontal
Changes in Self-Categorization .........................................................................................58
Abstract .........................................................................................................................58
Introduction ...................................................................................................................59
Theoretical Background ................................................................................................62
Self-Categorization and Organizational Sensemaking ..........................................63
Self-Categorization and Organizational Identity ...................................................64
Change in Self-Categorization and Categorical Sensegiving ................................65
Theoretical Foundations of Strategic Categorization ............................................66
Modes of Strategic Categorization: Vertical and Horizontal .................................67
Empirical Setting: Initial Public Offerings in the Internet Sector .................................69
Hypothesis Development ..............................................................................................72
Vertical Categorization and Change in Category Inclusiveness ............................72
Horizontal Categorization and Change in Category Spanning ..............................76
vi

Audience Heterogeneity and the Effect of Strategic Categorization .....................79
The Internet Bubble and the Effect of Strategic Categorization ............................81
Data and Methods .........................................................................................................83
Sample....................................................................................................................83
Dependent Variables ..............................................................................................85
Independent Variables ...........................................................................................86
Control Variables ...................................................................................................91
Statistical Methods .................................................................................................96
Results ...........................................................................................................................98
Underpricing ........................................................................................................102
Quantity of Institutional Investors .......................................................................108
Quality of Institutional Investors .........................................................................113
Robustness Checks...............................................................................................118
Discussion and Conclusion .........................................................................................123
Directions for Future Research ............................................................................130
GENERAL DISCUSSION AND CONCLUSIONS ........................................................136
REFERENCES ................................................................................................................143

vii

LIST OF TABLES
Table 1 Example of Change in Self-Categorization Over Time ........................................87
Table 2 Descriptive Statistics and Pearson Correlations ...................................................98
Table 3 Results of OLS Regression Analyses Predicting Underpricing
a
........................103
Table 4 Results of Negative Binomial Analyses Predicting the Quantity of Institutional
Investors ...........................................................................................................................109
Table 5 Results of Poisson Analyses Predicting the Quality of Institutional Investors...114
Table 6 Results of Logistic Regression Analyses Predicting Internet message board
activity..............................................................................................................................121

viii

LIST OF FIGURES
Figure 1. Types of strategic categorization. .......................................................................35
Figure 2. Modes of strategic categorization .......................................................................38
Figure 3. Degree of category inclusiveness: IPO versus pre-IPO .....................................78
Figure 4. Degree of category inclusiveness: Pre-IPO versus IPO ...................................100
Figure 5. Number of categories spanned: Pre-IPO versus IPO .......................................100
Figure 6. Degree of category inclusiveness at IPO: Internet-bubble versus postbubble .101
Figure 7. Number of categories spanning at IPO: Internet bubble versus post bubble ...101
Figure 8. Interaction effects of change in category spanning and Internet bubble period on
underpricing .....................................................................................................................106
Figure 9. Interaction effects of change in category spanning and Internet bubble period on
the quantity of institutional investors ...............................................................................112
Figure 10. Interaction effects of change in category spanning and Internet bubble period
on the quality of institutional investors ............................................................................117

ix

ABSTRACT
This dissertation proposes the notion of strategic categorization and explores how
organizations can strategically influence the categorization process of external audiences.
Extant studies on categorization have shown that organizations that do not fit into an
external audiences’ category structure are devalued. These studies, however, have not
examined the role of organizations in influencing their categorization and thus have failed
to develop an understanding of the categorization process that encompasses both the
organization’s categorical sensegiving and audience’s categorical sensemaking. This
dissertation helps to fill this gap by building on micro and macro perspectives of
categorization and insights from the literature on organizational identity and identity
management to argue that organizations can influence the categorization process of
external audiences by engaging in self-categorization strategies. The first essay develops
a theoretical framework for understanding the concept of and the process by which
organizations can engage in strategic categorization. In particular, it argues that category
studies need to investigate insights drawn from the vertical structure of categories in
addition to the horizontal structure of categories that has been the focus of prior studies.
The second essay empirically examines the effect of strategic categorization on
audience’s evaluations. The results based on firms that had gone through the initial public
offering (IPO) process demonstrate that organizations can manage the degree of category
inclusiveness and range of category spanning to influence potential investors’ evaluation
and that the effectiveness of such strategic categorization depends on the level of
audience knowledge and the prevailing logic of valuation. Specifically, while the overall
x

results suggest that changing category inclusiveness to take on a broader identity and
changing category spanning to create a more focused identity are positively evaluated by
IPO investors, they also show that institutional investors are influenced more by reducing
the number of categories spanned, and retail investors are influenced more by increasing
the degree of category inclusiveness. This dissertation considerably advances the
categorization literature by revealing the role of organizational agency in the
categorization process and ways in which organizations can engage in strategic
categorization based on both vertical and horizontal structures of categories.

1

ESSAYS ON STRATEGIC CATEGORIZATION
Introduction
Recent interest in categorization among management and organizational theory
scholars has resulted in an exciting research program investigating how categorization
influences organizational and market outcomes. In particular, studies have shown that
categories aid external audiences’ sensemaking, by grouping organizations and their
offerings in certain ways that enable commensuration and convey organizational identity,
thus influencing how external audiences evaluate organizations (Glynn, 2008; Hsu &
Hannan, 2005; Navis & Glynn, 2011; Zuckerman 1999). One key assumption of the
prevailing theorization has been that categories play a disciplining role, as demonstrated
by evidence that organizations or products that span multiple categories are devalued by
external audiences (e.g., Zuckerman, 1999).
Despite the stakes involved in how organizations are categorized, however,
surprisingly little research has examined how organizations can influence the process of
their categorization, namely, the categorical sensemaking by external audiences. As a
result, researchers have limited knowledge of how an organization can strategically
influence the process of its categorization to result in a categorization it prefers. A major
cause of this lack of attention to organization’s own role in the categorization process
appears to be prior studies’ assumptions that categories are exogenous—that is,
categories are imposed on an organization by external audiences based on the
organization’s resources and capabilities (Hannan, Pólos, & Carroll, 2007; Hsu &
Hannan, 2005). Categorization researchers have also lacked an integrative theoretical
framework for understanding how an organization’s categorical sensegiving and external
2

audiences’ categorical sensemaking operate to coconstruct the organization’s
categorization (for an exception, see Navis & Glynn, 2010). This dissertation argues that
a more inclusive and bilateral understanding of the categorization process that
encompasses both organizations and audiences can broaden understanding of the
categorization process in general and of strategic categorization in particular.
The overarching research question addressed by the dissertation is as follows:
“How can organizations strategically influence the process of their categorization by
external audiences?” More specifically, this research examines how an organization can
influence how it is categorized by external audiences in a way that leads to a preferred
categorization and subsequently results in favorable evaluations by external audiences.
Thus, this research answers recent calls for a closer study of strategic categorization
(Durand & Paolella, 2013; Vergne & Wry, 2014) and extends this line of work by
revealing the enabling conditions of strategic categorization.
Essay 1: Theoretical Framework of Strategic Categorization
The first essay develops a theoretical framework for understanding strategic
categorization, which it defines as an organization’s intentional and socially attentive
categorical claim-making that shapes its organizational identity by influencing the
categorization process of external audiences to attain a desired outcome. This theoretical
framework builds on both micro and macro perspectives on categories and categorization
and asserts that organizations can engage in categorical sensegiving to guide the
sensemaking process of their external audiences as long as organizations also
acknowledge certain boundary conditions within their institutional environment. It draws
from both the sociological perspective that assumes a horizontal structure of categories
3

and focuses on the number of distinct categories spanned by organizations and from the
cognitive psychological perspective that examines a vertical structure of categories and
focuses on the level of category inclusiveness selected by organizations. Integrating these
two perspectives, I posit, can redirect attention to how organizations can influence the
categorization process. More specifically, I argue that the agentic role of organizations
suggested by the cognitive psychological perspective allows for the possibility of
strategic self-presentation by organizations and that its attention to the vertical structure
of categories enables identification of subtle forms of strategic self-presentation within
the institutional constraints examined by the sociological perspective.
The essay next introduces different types and modes of strategic categorization
and illustrates how organizations can use ambiguity as a strategic categorization device.
In particular, I argue that imposing a certain level of ambiguity can be a useful strategic
categorization tactic because strategic categorization may require a more subtle framing
act than simply changing one category label to another. Organizations may choose to
become ambiguous in one of two ways: through ambiguous categorization, in which an
organization’s categorization may be ambiguous because it spans multiple categories, and
through taking on an ambiguous category, in which an organization adopts a category
label that is ambiguous because it is lenient (i.e., has fuzzy boundaries; Pontikes, 2012) or
inclusive (i.e., is higher in the hierarchical structure of categories). This study also
uncovers the enabling conditions of ambiguity-based strategic categorization by
considering organizational- and industry-level characteristics and the role of audiences.
Thus, this essay provides a more complete understanding of the categorization process by
highlighting the active role of organizations in strategically influencing categorization—
4

that is, through categorization work. The theoretical model advanced in this essay also
serves as the foundation for the subsequent essay, which investigates the effect of
strategic categorization on external audiences’ attention and evaluations.
Essay 2: Empirical Investigation of Strategic Categorization
The second essay empirically examines how strategic categorization influences
external audiences’ attention and evaluations. The primary goal of this study is to explore
the process and consequences of strategic categorization by examining how organizations
engage in categorical sensegiving by using self-categorization strategies targeted at
meeting or changing external audiences’ expectations to receive favorable evaluations.
Integrating sociological and cognitive psychological perspective on categorization, this
study hypothesizes that organizations can strategically influence the categorization
process in at least one of two ways: First, organizations can move up or down the vertical
structure of categories—that is, increase or decrease the degree of inclusiveness to
convey a broader or narrower identity; or second, organizations can increase or decrease
the number of categories spanned to convey a more or less focused identity. I also
propose a bilateral perspective on the categorization process that considers both an
organization’s self-categorization and external audiences’ categorization of the
organization by incorporating the role of audience heterogeneity and its effect on
strategic categorization into the analysis. Specifically, this study considers audience
heterogeneity in terms (a) of an organizational life cycle during which certain audiences
become more or less important to an organization over time and (b) of those audiences’
different levels of knowledge regarding specific categories and category structure. The
study thus aims to develop a more complete understanding of the categorization process
5

by considering both the categorical sensegiving of organizations and the categorical
sensemaking of external audiences.
Empirically, I test these ideas on firms in the Internet sector that went through the
initial public offering (IPO) process between 1997 and 2012 to examine how such firms
strategically use self-categorization labels to attract attention and receive favorable
valuations from potential investors, who consist mostly of institutional and retail
investors. I hold that an IPO is an ideal context in which to study strategic categorization
because firms pay great attention to positioning themselves in the market and selecting
the most appropriate category labels in order to be favorably perceived and evaluated by
their potential investors. Thus, a firm’s self-categorization at the time of the IPO
represents not just the firm’s identity based on its underlying resources and capabilities
but also its strategically crafted identity reflecting how it wants to be perceived and
evaluated by external audiences. Results from the analyses indicate that organizations can
manage the degree of category inclusiveness and range of category spanning to influence
external audiences’ evaluation and that the effectiveness of such strategic categorization
depends on the level of audience knowledge and the prevailing logic of valuation.
Specifically, while the overall results of the study suggest that changing category
inclusiveness to take on a broader identity and changing category spanning to create a
more focused identity were positively evaluated by IPO investors, the findings also
indicate that whereas institutional investors were positively influenced by reducing the
number of categories spanned at IPO, especially during the post bubble period, retail
investors were positively influenced by increasing the degree of category inclusiveness at
IPO, both during and after the Internet bubble.
6

This dissertation advances the theoretical understanding of categories and
categorization by proposing the notion of strategic categorization. In particular, by
identifying complementary views from both the sociological and the cognitive and social
psychological perspectives on categorization to highlight the role of organizations, this
dissertation theoretically develops and empirically shows how organizations can
strategically influence the categorization process by external audiences. This approach is
in sharp contrast to previous studies based on the sociological perspective of
categorization that consider the categorization process as entirely exogenous by arguing
that organizations can actively shape their categorization. This dissertation also integrates
the vertical structure of categories into the horizontal structure of categories that has been
the main focus of studies based on the sociological perspective. Reinvigorating interest in
the vertical category structure and how it can work with well-established insights
regarding the horizontal category structure is another contribution of this dissertation.
Moreover, this dissertation presents a bilateral approach to understandings of
categorization by considering organizations’ categorical sensegiving and external
audiences’ categorical sensemaking. Thus, to the extent that researchers can understand
the types of strategic categorization and how the effect of strategic categorization may
differ for different types of audiences in different social contexts, scholars can develop a
better understanding of how audience characteristics and social contexts may influence
the efficacy of a particular strategic categorization.
In sum, this dissertation offers a more complete understanding of the
categorization process to extend those of prior studies that have treated organizations as
passive recipients of categorizations. In doing so, I develop an integrative theoretical
7

framework based on both micro and macro perspectives of categorization and offer new
insights on strategic categorization by highlighting the active role of organizations in
strategically influencing categorization. Its development of the notion of strategic
categorization and its empirical analyses also suggest a number of potentially interesting
avenues of research that intersect the literatures of categories, organizational identity, and
institutional theory.
8

ESSAY 1: Categorization Work: Toward an Understanding of Strategic Categorization
Abstract
This study argues that understanding of categories and categorization has been limited by
the prevailing view that categories are exogenously imposed on organizations by external
audiences and thus are constraints. It instead proposes a complementary strategic
categorization perspective by identifying ways in which organizations can strategically
influence the categorization process by external audiences within the limits of
institutional constraints. By integrating both micro and macro perspectives on categories
and categorization and the findings of the current literature on organizational identity and
identity management, this study develops a type and mode of strategic categorization.
The current study also illustrates how organizations can use ambiguity as a strategic
categorization device and suggests the enabling conditions of ambiguity-based strategic
categorization by considering organizational- and industry-level characteristics and the
role of audiences. Thus, this research provides a more complete understanding of the
categorization process by highlighting the active role of organizations in strategically
influencing categorization, that is, the categorization work.

Keywords: categories, strategic categorization, organizational identity, labels, ambiguity

9

Category studies, which have held the interests of organizational scholars from
both sociological and cognitive psychological perspectives, have been interested in
investigating the antecedents and consequences of categorization. Studies from the
sociological tradition have mostly examined the consequences of categorization.
Specifically, much of this research takes the categorical imperative approach proposed by
Zuckerman (1999), which focuses on the disciplining role of categories. The main
argument of this work is that entities —whether they are organizations (Zuckerman,
2000), stocks (Zuckerman, 1999), wine producers (Negro, Hannan, & Rao, 2010), or
films (Hsu, 2006) — that do not readily fit into the external audiences’ pre-established
category structure and instead span multiple categories will be ignored or devalued by
external audiences. In emphasizing the constraints imposed by categories, however,
Zuckerman (2000) downplayed the possibility that organizations can engage in
influencing their categorization: “That institutional environments limit the range of
organizational self-presentation constitutes the dominant theme of neo-institutional
theory. The market also sets clear bounds on the public identities that economic
organizations may adopt for themselves and their product” (p. 615).
Studies from the cognitive psychological tradition have instead explored the ways
that categorization facilitates organizational sensemaking. Specifically, these studies,
most of which have been conducted by Porac and his colleagues (Porac & Thomas, 1990,
1994; Porac, Thomas, & Baden-Fuller, 1989; Porac, Thomas, Wilson, Paton, & Kanfer,
1995) have examined how organizational managers use categories as cognitive maps to
understand their organization’s relative position within the competitive landscape. In
particular, this mapping involves positioning an organization using categories of different
10

hierarchical levels that are more or less inclusive, thereby identifying the organization’s
competitors and range of possible subsequent actions (Porac et al., 1995).
The categorization of an organization, particularly its categorization by external
audiences, has considerable consequences on that organization’s survival and growth,
since categorization influences the legitimacy and expectations that external audiences
hold about the organization (Zuckerman, 1999, 2000). An organization can potentially be
categorized in more than one way. For instance, Tesla Motors could have assumed a
clean tech identity when going public, an identity that had infused the company with
investments from venture capitalists and the government earlier in its life. Instead, its
identity as an automobile manufacturer, or more specifically, an electric automobile
manufacturer, seems to have become more prominent since its IPO. For Tesla, being
categorized as a clean tech company would have set different audience expectations than
being categorized as an automotive company, such as expectations that its automobiles
would operate in a sustainable way rather than being cost-effective. In addition, the clean
tech category was a relatively nascent category within the established financial
community and became less attractive to investors around the time of Tesla’s public
offering, factors that could have decreased Tesla’s legitimacy in the stock market. As
such, Tesla had a great stake in being categorized in one way and not the other. Given the
huge consequences of categorization on organizations, then, organizations are likely to be
interested in influencing the categorization process, particularly when it involves
categorization by external audiences.
Despite the stakes involved in how organizations are categorized, surprisingly
little research has previously been conducted on how organizations can influence the
11

process of their categorization by external audiences (for an exception, see Granqvist,
Grodal, & Woolley, 2013). It seems, however, that close attention to the
complementarities of the two main streams of research that have been conducted on
categorization more generally – from the sociological and cognitive psychological
perspectives — can shed light on organizations’ involvement in their categorization.
While the sociological perspective treats categorization as an exogenous process in which
an organization is passively categorized by external audiences and is expected to conform
to categorical constraints, the cognitive psychological perspective focuses more on the
organization’s role in self-categorization, in which the organization selects a category or
categories that it believes would best facilitate its sensemaking. In addition, while the
sociological perspective seems to assume a horizontal structure of categories and focuses
on the number of distinct categories spanned by organizations, the cognitive
psychological perspective draws its insights from a vertical structure of categories and
focuses on the level of category inclusiveness selected by organizations. Integrating these
two perspectives, therefore, can redirect attention to how organizations can influence the
categorization process. More specifically, the agentic role of organizations that is
suggested in the cognitive psychological perspective allows for the possibility of strategic
self-presentation by organizations, and its attention to the vertical structure of categories
enables identification of subtle forms of strategic self-presentation while still under the
institutional constraints examined by the sociological perspective.
Indeed, this study asserts organizations can engage in categorical sensegiving, that
is, “the process of attempting to influence the sensemaking and meaning construction of
others toward a preferred redefinition of organizational reality” (Gioia & Chittipeddi,
12

1991, p. 442), to guide external audiences’ categorization process as long as
organizations also acknowledge certain boundary conditions in their institutional
environment. To understand such categorization work,
1
in this study I focus on a concept
I am calling strategic categorization, which I define as an organization’s intentional and
socially attentive categorical claim-making that shapes its organizational identity by
influencing the categorization process of external audiences to attain a desired outcome.
In particular, I argue that strategic categorization is a framing act using category labels.
Frames are commonly considered a schemata of interpretation (Goffman, 1974; Snow,
Rochford, Worden, & Benford, 1986) that influence audiences’ perceptions by
selectively highlighting certain aspects of an event while hiding others (e.g., Fiss &
Zajac, 2006; Rhee & Fiss, 2014). Thus, by using certain category labels to communicate
with external audiences, organizations can highlight their desired categorical membership
while hiding other possible categorical memberships so as to selectively convey their
preferred categorical membership and guide external audiences’ categorization process.
Such strategic categorization will not only influence external audiences’ perception of the
organization in general, but also affect external audiences’ expectations in particular. By
managing audiences’ perceptions and expectations, organizations can not only gain

1
Viewing strategic categorization as categorization work also raises the issue of how it is similar or
different from identity work. At the individual level, the existing literature on identity work focuses on
“individuals' active construction of identity in social contexts” (Pratt, Rockman, & Kauffman, 2006, p.
237). Such research examines how individuals construct their personal identity within the limits of their
social group’s influence, and thus views this process as mutually constitutive (Pratt et al., 2006; Watson,
2008). Although earlier studies in this area viewed identity work as internally oriented, with a focus on self-
reflection (e.g., Snow & Anderson, 1987), recent studies have acknowledged that it also has an externally
oriented component in which individuals engage with social identities (Watson, 2008). Thus, while these
two perspectives - categorization work and identity work - are similar in that both acknowledge actors’
agency within the boundaries of their surroundings, categorization work is more externally oriented
whereas identity work is more internally oriented.
13

legitimacy and favorability, but also garner support for their actions by becoming more
predictable based on clear expectations, which will in turn increase their chances of
survival and growth (Meyer & Rowan, 1977; Oliver, 1991).
This paper’s central purpose, however, goes beyond presenting a strategic
perspective for understanding categorization. It is also concerned with identifying
possible paths that organizations can take to strategically manage their categorization and
shape their organizational identity while still under institutional constraints. In doing so, I
focus on the role of ambiguity as a strategic categorization device (Eisenberg, 1984;
Granqvist et al., 2013). Ambiguity is a double-edged sword for organizations when it
comes to categorization and organizational identity. While most of the extant
categorization literature has discussed the disadvantages of being ambiguous
(Zuckerman, 1999), some studies have illuminated the positive role that ambiguity can
play in certain circumstances (Granqvist et al., 2013; Pontikes, 2012; Zuckerman, Kim,
Ukanawa, & Rittman, 2003). Ambiguity in categorization can take two forms. First, an
organization’s categorization can be ambiguous if it spans multiple categories. Second, a
category adopted by an organization can be ambiguous when either the category itself is
lenient, that is, has fuzzy boundaries and low contrast (Pontikes, 2012), or when it is
inclusive, that is, higher up in the hierarchical structure of categories. This study argues
that strategic categorization that either increases or decreases ambiguity in the eye of the
beholders can be one of the most suitable strategies for organizations operating under
institutional constraints. This study also considers the enabling conditions of using
ambiguity as a categorization device at the organization, industry, and audience levels to
14

develop insights into the conditions under which strategic categorization addressing
ambiguity will yield more or less acceptance among external audiences.
Categories and Categorization in and Around Organizations
Categories exist everywhere: product categories, organizational categories,
market categories, and industry categories, to name a few (Jensen, 2010; Vergne & Wry,
2014). Broadly defined, categories represent “a meaningful consensus about some
entities’ features as shared by actors grouped together as an audience” (Durand &
Paolella, 2013, p. 1100). The current study pays particular attention to market categories.
Navis and Glynn (2010) define a market category as “an economic exchange structure
among producers and consumers that is labeled with a meaning agreed upon by the actors
and audiences who use it” (p. 441). Thus, it is the market categories that set market
expectations about an organization and thus constrain or enable organization’s actions.
Below, I first review the cognitive psychological perspective and the sociological
perspective on categorization and discuss how these perspectives complement each other.
I then examine prior studies that hint at the possibility of strategic categorization.
Categorization as a Sensemaking Tool
Stemming from the basic notion that people use cognitive categories to simplify
and make sense of their environment (Rosch 1978; Rosch, Mervis, Gray, Johnson, &
Boyes-Braem, 1976), categorization literature within the cognitive psychological
tradition has focused on examining the sensemaking role of categories: As Fiol (1995)
put it, “categories filter what people experience as their reality and thus potentially
influence their actions and reactions” (p. 522). This stream of work suggests that
cognitive categories are organized in a hierarchical manner, from being inclusive (broad)
15

to specific (narrow; Rosch, 1978; Rosch et al., 1976). That is, categories are vertically
related to one another by means of class inclusion in which the more inclusive categories
have a higher level of abstraction with sub-categories nested within higher-level
categories.
At the organizational level, categories are used as cognitive maps that influence
how managers make sense of their environment and in turn affect internal organizational
functioning (Fiol, 1995; Hodgkinson & Johnson, 1994; Porac & Thomas, 1994). For
instance, Porac and colleagues (Porac et al., 1989; Porac et al., 1995; Porac & Rosa,
1996; Porac & Thomas, 1990, 1994) have examined how organizations use vertical
dimensions of cognitive taxonomy to place themselves within a hierarchy of
organizations so as to understand and define the competitive landscape. For example, as
Porac and Thomas (1994) illustrated, taxonomic levels can vary in their inclusiveness
from being very broad (e.g., service firms) to very narrow (e.g., hamburger fast-food
restaurants). However, this notion of a hierarchical category structure has not received
much attention in the categorization literature until recently. Wry and Lounsbury (2013),
for instance, have revitalized the vertical category structure in their study of nanotube
technology firms by showing that venture capitalists’ evaluation of category-spanning
patenting depended on how the spanned patents were vertically related.
Categorization as an Imperative
Meanwhile, scholars taking the sociological perspective regularly focus on the
disciplining role of categorization, suggesting that failing to fit into the established
16

category structure leads to devaluation by external audiences.
2
The central logic
underpinning the negative consequences of categorization—illegitimacy discount—can
be traced back to Zuckerman’s (1999) foundational argument regarding the categorical
imperative. Proposing a two-stage model of how audiences evaluate an offering,
Zuckerman (1999) argues that during the first stage of evaluation, it is critical that the
offering be placed into a distinct category. Only after such categorization takes place can
the offering be compared to other offerings within the same category to gauge its worth.
In particular, Zuckerman (1999, 2000) shows that a stock with ambiguous
categorization—that is, one that does not fit readily into the industry-based categorization
structure—will be devalued by stock analysts.
Building on this idea, many studies have shown how category spanning leads to
devaluation or ignorance by external audiences across diverse contexts, including movie
actors (Zuckerman et al., 2003), films (Hsu, 2006; Hsu, Hannan, & Koçak, 2009), and
online sellers (Hsu et al., 2009). According to Hsu et al.’s analysis of actors and online
market sellers, such devaluation is explained in two ways. First, the audience-side
explanation contends that offerings that do not conform to the established category
structure are less appealing to audiences since they poorly fit with category expectations
compared to specialized offerings. Second, the producer-side explanation argues that
offerings that span multiple categories are less appealing to audiences since such

2
The cognitive psychological view also acknowledges the need for a stimulus to fit into a pre-existing
cognitive structure, which in the cognitive and social psychological literature terms schemas (Kuperman,
2003; Starbuck & Milliken, 1988). However, the consequences of not neatly fitting into a schema do not
seem have as significant consequences.
17

offerings are actually less capable of developing outstanding capabilities in any particular
category compared to specialized offerings.
To delineate the boundary conditions of the categorical imperative, some recent
studies have examined situations in which category spanning does not necessarily lead to
devaluation. For instance, Kovács and Hannan (2010) show that the degree of contrast
among the categories being spanned by restaurants influences restaurant reviewers’
evaluation of the restaurants. Pontikes (2012) argues that different audiences with
different criteria, market-makers and market-takers in particular, will evaluate category
spanning differently in the entrepreneurial context. Leung (2014) also contends that the
sequence of categorical membership will influence audiences’ evaluation of multiple
categorical memberships in the context of hiring online freelancers. These studies
therefore posit that devaluation due to ambiguous categorization does not necessarily
prevail under different conditions and direct attention to the nuances behind ambiguous
categorization and even how organizations can more actively engage in managing their
categorization.
In summary, both perspectives acknowledge that organizations are affected by
how they are categorized. The cognitive psychological view holds that how the category
an organization selects to make sense of its surroundings works as a lens through which
information is filtered and influences its subsequent actions. The sociological view posits
that the category assigned to an organization sets the type and level of expectations and
constrains the organization to conform to that category and category structure. That is, as
Rindova, Dalpiaz, and Raviasi (2011) put it, “Categories provide institutionalized
frameworks that capture collective understandings regarding the typical ‘capabilities,
18

products, and attributes’ of member organizations (Porac, Wade, & Pollock, 1999, p.
112), and features and imperatives of action to which organizations are expected to
conform” (p. 424). At any rate, the consequences of categorization are significant since a
category links an organization with certain stakeholders, identifies comparable
organizations, and invokes certain expectations: “organizations become linked to the
crucial social and cognitive mechanisms through which assessments of legitimacy and
reputation emerge” (King & Whetten, 2008, p. 194).
Theoretical Foundations of Strategic Categorization Research
Despite the huge consequences of categorization for organizations, researchers
still lack a clear understanding of how organizations can influence their categorization
process. Only recently has the need to examine strategic categorization gained scholarly
attention (e.g., Vergne & Wry, 2014), and research into self-interest-driven
categorization, while scarce, has begun to emerge. Practitioners, on the other hand, have
long acknowledged the importance of strategic categorization. For instance, many public
relations firms offer such services as IPO communications or IPO readiness, through
which firms preparing for an IPO receive advice on such things as developing a strong
identity and strategically positioning their firm, which may involve redefining their
market category.
Studies examining issues related to strategic categorization are scattered in the
literature. For instance, Porac et al. (1999) examine how organizations strategically use
industry categories to define their identity when faced with a potentially negative
valuation regarding CEO compensation. Specifically, the authors find that firms
selectively define their comparison group by broadening industry boundaries as a self-
19

protective measure. In doing so, they note, categories are “laced with considerable
political capital” (p. 113). Lamertz, Heugens, and Calmet (2005) examine how firms
manage their organizational image within the Canadian beer brewing industry and claim
that “the categorization that results from such attribute claims is tantamount to claiming
legitimacy in a strategic sense” (p. 823). More recently, studies have examined how
entrepreneurial firms actively engage in influencing their categorization. For instance,
Navis and Glynn (2010, 2011) demonstrate that entrepreneurial firms shape their
identities by making categorical claims. In particular, the authors have investigated how
entrepreneurial firms participating in the satellite radio market have actively shaped both
their collective and organizational identities (2010). Granqvist et al. (2013) take a
symbolic management perspective to investigate how executives of nanotechnology firms
opportunistically use labeling strategies. In particular, they uncover three labeling
strategies—claiming, disassociating, and hedging—used by executives to influence their
firm’s categorization by audiences.
Bridging the Sociological and Cognitive Psychological Perspectives
While broadening understanding of strategic categorization, these prior studies
appear to have missed an opportunity to further advance research on strategic
categorization by integrating the complementary view from the cognitive psychological
perspective. However, as discussed earlier, the cognitive psychological perspective has
the potential to enrich the research on strategic categorization not only by providing a
more agentic approach toward the organization’s role in categorization but also by
allowing more subtle but systematic ways for organizations to influence their
20

categorization by external audiences.
3
Notably, this latter aspect entails integrating the
vertical structure of categories based on the level of inclusiveness of a category with the
horizontal structure of categories that has been the focus of prior studies taking a
sociological perspective.
While the horizontal dimension concerns the “segmentation of categories at the
same level of inclusiveness” (Rosch, 1978, p. 30), researchers have identified three levels
of categories representing the level of abstractness or inclusiveness along the vertical
dimension (Rosch, 1978; Rosch et al., 1976): superordinate, basic, and subordinate. The
superordinate level is the most inclusive category level and superordinate categories
share fewer common attributes among themselves. The subordinate level is the least
inclusive category level and subordinate categories share most of their attributes with
other subordinate categories nested in the same basic level category. Between these two
levels, the basic level “can be seen as a compromise between the accuracy of
classification of a maximally general level and the predictive power of a maximally
specific level” (Murphy, 2004, p. 210). Generally considered the most relevant level, the
basic level categories are “those which carry the most information, possess the highest
category cue validity, and are, thus, the most differentiated from one another” (Rosch et
al., 1976, p. 382).

3
I acknowledge some concerns about the legitimacy of borrowing theories that explain psychological
phenomena for organizational-level application. However, I draw on Whetten (2006), who argued that
“organizational constructs borrowed from the individual level of analysis need not have the same structures,
only the same functions (i.e., comparable effects or consequences)” (p. 221) and on Foreman and Whetten
(2012), who claim that “organizations and individuals are both social actors and that all social actors share
a common set of identification requirements” (p. 9).
21

Some previous studies have shown how different levels of inclusiveness can be
strategically used. At the organizational level, for instance, Porac and Thomas (1990)
posit that organizations can choose to be defined at a different level of inclusiveness, that
is, to make “vertical shifts to a different level of abstraction” as a creative way to
recategorize themselves (p. 234). At the individual level, studies in cognitive psychology
have investigated how different levels of inclusiveness can be strategically used,
examining, for instance, the role of linguistic abstractness on how people describe the
positive and negative actions of in-group versus out-group members or when positive or
negative information is communicated to individuals with different attitudes (Fiedler,
Bluemke, Friese, & Hoffman, 2003; Holtgraves, 2010).
Thus, I argue, further developing understanding of strategic categorization
requires a systematic integration of sociological and cognitive psychological
perspectives. As Glynn and Navis (2013) claim, “Organizations are seen to claim
identities at different (vertical) levels of category specificity, from superordinate to basic
level categories, and to pull in distal (horizontal) categories that can introduce legitimate
variation into already established categories” (p. 1129).
Organizational Identity, Categorical Claims, and Identity Management
I now turn to organizational identity literature to understand the link between how
organizations can influence the categorization process and how this shapes their
organizational identity. As Negro, Koçak, and Hsu (2010) note, organizational identity
has several functions that are intertwined with the role of categorization as posited by
both the sociological and cognitive psychological perspectives on categorization: identity
“informs organizational actors of courses of action that are open to and expected of them,
22

helps firms identify their rivals, and serves as handles for frames of reference that
audiences use in their evaluations” (p. 17). In addition, I also turn to earlier insights
regarding identity management in general and self-presentation in particular to explore
their implications for strategic categorization. Integrating concepts and findings from this
seemingly different yet significantly relevant literature will enrich understanding of
strategic categorization even further.
Organizational Identity as Categorical Claims
Research on organizational identity dates back to Albert and Whetten (1985), who
famously define organizational identity as the organization’s attributes that are central,
distinctive, and enduring and argue that "organizations define who they are by creating or
invoking classification schemes and locating themselves within them” (p. 267).
Acknowledging that “the formulation of a statement of identity is more a political-
strategic act” (Albert & Whetten, 1985, p. 268), Whetten and colleagues promote a social
actor perspective toward organizational identity, claiming that “identities are conceived
of as the categorical self-descriptors used by social actors to satisfy their identity
requirements” (Whetten & Mackey, 2002, p. 396). From this perspective, organizational
identity is viewed as a form of self-defining attribute, particularly as a set of categorical
claims made by an organization (Whetten, 2006; Whetten & Mackey, 2002). Therefore, it
argues, “different schemes may be employed on different occasions with self-interest”
(Albert & Whetten, 1985, p. 268) and “the formulation of a statement of identity is more
a political-strategic act than an intentional construction of a scientific taxonomy” (p.
268). Thus, by recognizing the active role of organizations in shaping their identity
23

through categorical identity claims, the social actor perspective on organizational identity
informs the theorization of strategic categorization in this paper.
4

In taking a social actor perspective on organizational identity, I highlight how this
perspective is different from two alternative perspectives on organizational identity to
further clarify the relationship between organizational identity and categorization, and its
relationship to strategic categorization. First, in contrast to the social actor perspective
that discerns how organizational identity is shaped via organizational members’
sensegiving, the social constructionist perspective in organizational identity is concerned
with how organizational identity is developed from organizational members’
sensemaking. In particular, this perspective defines organizational identity as meaning
negotiated among organizational members (Gioia, Patvardhan, Hamilton, & Corley,
2013; Gioia, Schultz, & Corley, 2000) and therefore focuses on “the shared interpretive
schemes that members collectively construct to provide meaning to their organizational
experience” (Gioia et al., 2013, p. 5). Scholars from the social constructionist perspective
argue that the externally oriented, self-interest-driven organizational identity posited by
the social actor perspective undermines organizational members' collective beliefs about
the organization and thus may differ from organizational identity held by organizational
members (Gioia et al., 2013). Second, whereas the social actor perspective focuses on
organizational identity created by claims regarding the organization’s central, distinctive,

4
Jensen, Kim, and Kim (2011) also provide a relevant definition of the market identity of an organization
as “its membership in a social category that is used to identify a social actor and specify what to expect
from the social actor” (p. 6). This is useful since it incorporates the idea that market identity conveys
expectations, that is, “the minimal expectations to claimants of a particular identity” (Jensen et al., 2011, p.
6). In defining market identity, two dimensions are considered, the first being product categories and the
second being status categories. While I acknowledge the importance of these two dimensions in composing
an organization’s market identity, the current study shies away from this definition because managing
status categories through strategic categorization is much more complicated and probably less viable.
24

and enduring features, the population ecology perspective emphasizes how external
audiences define organizational identity by categorical membership based on the
embodiment of a categorical prototype by organizations (Hannan, Baron, Hsu, & Koçak,
2006; Hsu & Hannan, 2005; Pólos, Hannan, & Carroll, 2002).
It is also worthwhile to acknowledge that some scholars describe an externally
oriented organizational identity as an organizational image, which they view as
“conceived of as identity-congruent messages invoked by organizational agents in their
communications with outsiders” (Whetten & Mackey, 2002, p. 400). I contend, however,
that the focus of this study is still on organizational identity in that strategic
categorization is concerned with influencing the categorization process by external
audiences, which, if successful, then leads to shaping organizational identity. Moreover,
in contrast to the concept of organizational image, which has more to do with positive or
negative perceptions about an organization, that of organizational identity carries a
broader meaning. That is, organizational identity also embodies what is expected of the
organization by external audiences.
In addition, it is important to note that organizational identity cannot be defined
from random identity claims. Categories invoked from claim-making still need to
conform to constraints in the organization’s institutional environment by “considering
which are the relevant and available categories and which are the salient and possible
authorities to which claims can be made” (Whetten & Mackey, 2002, p. 398).
5
In this

5
While Glynn (2008) argues that Albert and Whetten’s (1985) perspective on organizational identity is
similar to personal identity in that they take an individualist approach to identity, recent studies by Whetten
(e.g., Whetten, 2006) seem toshow that he has embraced the social aspect of organizational identity more
closely to his original definition: “the principal value of identity referents as shared decision premises lies
25

sense, this study’s take on organizational identity may be closer to what Gioia et al.
(2013) recently termed an institutional perspective, which “locate(s) identity in broader
frames of meaning that arise from industry, cultural and societal institutions” (Glynn,
2008, p. 414).
Use of Categorical Claims in Managing Identity
Viewing organizations as social actors necessarily assumes that organizations are
capable of initiating actions and that such actions have clear intentions (Foreman,
Whetten, & Mackey, 2012; King, Felin, & Whetten, 2010). Specifically, viewing
organizational identity as stemming from categorical identity claims allows for
connection with early insights from identity management that focused mostly on
individual-level self-presentation and identity management.
Studies examining how people present themselves to others date back at least to
Goffman’s seminal 1959 study on presenting the self. In The Presentation of Self in
Everyday Life, Goffman suggests that individuals have a need to manage how others view
them, particularly to set the tone and direction of interactions between them. Drawing on
this insight, early scholars on strategic self-presentation studied how individuals try to
bring their most positive qualities to the attention of others by “selective disclosures and
omissions, or matters of emphasis and timing, rather than blatant deceit or dissimulation”
(Jones, 1990, p. 175). For example, scholars note two motives for strategic self-
presentation: audience pleasing and self-affirmation, the former directed externally and
the latter directed internally (Baumeister & Hutton, 1987). These studies of self-

in their generally accepted meaning within an encompassing social-cultural milieu” (Whetten, 2006, p.
223).
26

presentation later evolved into a field that became known as impression management.
Given, however, that impression management deals with diverse issues beyond managing
identity, early studies on self-presentation, such as Baumeister and Hutton (1987) and
Schneider (1981), have more direct relevance to the current study.
In social psychology, meanwhile, a stream of research based on social identity
theory, and self-categorization theory in particular was developed to better understand
how people manage their social identity. In general, these studies have found that one
way people manage their social identity is to label themselves as belonging to a particular
social category that helps them maintain others’ positive perception of their social
identity (Hogg & Terry, 2000; Hogg, Terry, & White, 1995; Hornsey, 2008; Tajfel,
Billing, Bundy, & Flament, 1971). Specifically, this self-categorization literature has
shown that, similar to the findings of cognitive psychological perspective on
categorization (e.g., Porac & Thomas, 1994; Rosch, 1978), an individual’s categories are
not fixed and can be simultaneously defined at different levels of abstraction or
inclusiveness depending on the salience of the categories within a given context (Turner,
1985, 1999). For instance, a person can be categorized as a scientist or a biologist at the
same time, where scientist is a more inclusive social identity and biologist is a more
specific personal identity. In managing such identities, Turner (1999) claims, people can
influence their social identities by selectively highlighting social categories that will
shape a more positive identity. Hogg and Terry (2000) argue that shaping the intergroup
social comparative context in which those identities are defined can change one’s social
identity, and thus one’s attitudes, motives, and goals.
27

More recently and more relevant to the current study, Roberts (2005) has
developed a social identity–based impression management perspective. Specifically,
Roberts (2005) argues that individuals strategically invoke social categories “to
communicate favorable attributes, leverage positive group affiliations, and counteract the
impact of negative stereotyping on others' perceptions” (p. 694). Roberts also identifies
two ways of performing social identity–based impression management: In recategorizing,
individuals change the social categories to which they are assigned, and in enhancing
positive distinctiveness, individuals increase the positive valence of the meaning of the
group with which they are associated. In short, studies conducted at the individual level
generally conclude that selectively invoking a preferred social category among many
possible other social categories is a prevalent way of managing identity. Still, it is
important to note that in many cases, self-presentation and identity management are
internally oriented, that is, focused on self-affirmation, self-esteem, and so on, while in
fewer other cases they are externally oriented toward managing others’ perceptions.
At the organizational level, scholars have examined how organizations manage
their identity when faced with threats to organizational identity (Elsbach & Kramer, 1996)
or when organizations go through strategic change (Corley & Gioia, 2004). For instance,
in an investigation of how business schools managed threats to their perceived
organizational identity after a new business school ranking was released, Elsbach and
Kramer (1996) found that when a business school faced a lower than expected ranking,
members of the business school either highlighted positive attributes that were not
considered in the ranking or changed the social comparison by considering other business
schools that were not included in the ranking. It is important to note, however, that the
28

selective categorization proposed by Elsbach and Kramer is more internally oriented than
that employed in this study, as it is aimed at resolving identity dissonance and restoring
the positive self-perception of organizational members. Yet, the authors also observe that
it is difficult to disentangle such internally oriented self-affirmation from externally
oriented self-presentation. Additionally, in their study of the organizational identity
change of a spin-off into an independent organization, Corley and Gioia (2004) propose
two ways in which organizational identity can change: changing the label used to
describe the organization and changing the meanings associated with the existing label.
Specifically, the authors find, the organization’s meaning-based identity change was
followed by attempts at labels-based identity change. Thus, while both of these studies
are focused on how organizational identity is shaped from within, they imply that
organizations can use categorization for both sensemaking within the organization and
sensegiving to external audiences, opening up the possibility to examine the functional
role of categorization, or that of strategic categorization targeted at external audiences.
Strategic Categorization: Definition
As noted earlier, in this study I define strategic categorization as an organization’s
intentional and socially attentive categorical claim-making through which it shapes its
organizational identity by influencing the categorization process of external audiences to
attain a desired outcome. Several elements of this definition merit elaboration. First, it
acknowledges that organizations are social actors. That is, it holds that organizations are
not “cultural dopes” (Hirsch & Lounsbury, 1997, p. 415), but rather autonomous agents
that “consciously shape and manage their intersubjective worlds in the service of their
own political interests” (Porac et al., 1999, p. 113). Second, it recognizes that strategic
29

categorization is “not purely cognitive but socio-cultural as well because it is anchored in
the context in which categorizing occurs" (Glynn & Navis, 2013, p. 1127). That is, this
study views an organization “as a skilled cultural operative, sufficiently agentic so as to
select those cultural elements that align with its internal character, but not so insensitive
as to adopt those elements that are culturally inappropriate or illegitimate” (Glynn &
Watkiss, 2012, p. 65). Third, it posits the evaluative presence of external audiences, each
of which might have different evaluation criteria (Lamertz et al., 2005; Pontikes, 2012)
and that organizations are capable of understanding those audiences’ criteria and
expectations (Gollwitzer, 1986). Fourth, it assumes that organizations have an expected
end state in mind, that is, a desired categorization and organizational identity, before
engaging in any strategic categorization. Therefore, it is much more instrumental than the
view that such action is driven by “the simple desire or need to be perceived as likable,
competent, and so forth” (Gollwitzer, 1986, p. 156). Moreover, strategic categorization
will only be considered successful when the target audience categorizes the organization
in line with the categorization suggested by the organization, which is different from
influencing the impressions that external audiences form about a certain organizational
identity (i.e., organizational image management).
Strategic Categorization and Label-based Framing
To influence external audiences’ categorization process, this study claims,
organizations must be able to influence how these audiences make sense of
organizational identity through categorical claim-making. More specifically, influencing
the sensemaking process involves influencing which schemas audiences will use when
categorizing an organization. In this study, I argue that this task can be facilitated by
30

language, specifically by the use of labels (Fiol, 2002; Glynn, 2000; Granqvist et al.,
2013; Pontikes, 2012). According to Ashforth and Humphrey (1997), “while categories
constitute the classification system into which stimuli are grouped, signifiers and labels
constitute the tags used to designate the categories” (p. 46). In a study of the role of
labeling in how executives symbolically managed their entrepreneurial firms’
membership in the nanotechnology market, for instance, Granqvist et al. (2013)
distinguish between the denotations of a label, which are its categorical reference, and the
connotations of the label, which are the underlying aspects of meaning systems to which
label refers. For example, the dot.com label would denote firms engaged in Internet-
related business. The dot.com label’s connotation, on the other hand, has changed over
time, conveying positivity, excitement, and huge growth potential before the Internet
bubble burst and probably the opposite after the ensuing crash. Thus, labeling not only
signifies categorical membership and informs audiences about an organization’s
characteristics, but is also a powerful rhetorical device that imposes certain meanings and
serves as a frame for interpretation (Ashforth & Humphrey, 1997).
6

In addition to attaching labels, influencing the categorization process of external
audiences also involves invoking the organization’s preferred categorization in the mind
of a target audience. Because this involves highlighting a certain category label while
downplaying other available labels, strategic categorization can be considered an act of

6
By focusing on labeling, the current study does not investigate how organizations can engage in strategic
categorization by other possible means, which may include changing the meaning underlying a label (e.g.,
Corley & Gioia, 2004) or managing substantial organizational features that inform labeling. For instance, in
their examination of the role of agency in shaping market identity in their study of opera companies, Kim
and Jensen (2011) found that organizations can make certain features more or less salient, such as through
ordering, to influence market identity.
31

framing. Although a frame can be defined in different ways, it is commonly considered a
schemata of interpretation (Goffman, 1974; Snow et al., 1986) that guides attention by
selectively highlighting certain aspects of an event or impression while hiding others to
influence an audience’s perception (Fiss & Zajac, 2006; Rhee & Fiss, 2014), mostly
through the use of language.
7
Thus, by using certain category labels to communicate with
external audiences, organizations can highlight desired categorical membership while
hiding other possible categorical memberships. This in turn can enable organizations to
selectively convey their preferred categorical membership and guide external audiences’
categorization process. Such strategic categorization will not only influence external
audiences’ perception of the organization in general, but also affect their expectations in
particular. By managing audiences’ perceptions and expectations, this study
hypothesizes, organizations can gain legitimacy and favorability and garner support for
their actions by becoming more predictable based on clear expectations, which can in
turn increase their chances of survival and growth (Meyer & Rowan, 1977; Oliver, 1991).
Strategic Categorization: Process and Implications
Organizations may have different motivations for initiating strategic
categorization, and accordingly, such strategic categorization may take different forms. In
this section, I illustrate whether organizations engage in strategic categorization to meet
or change external audiences’ expectations and whether such strategic categorization is
responsive or pre-emptive to external stimuli. Based on such distinction, four types of

7
Of course, there are other means available for framing other than language, such as the use of symbols, or
the timing and location of an action.

32

strategic categorization are presented with examples. Moreover, I also propose several
different modes strategic categorization can take.
Motives for Strategic Categorization
Meeting versus changing categorical expectations. What motivates
organizations to engage in strategic categorization? Research focused on the strategic
self-presentation of individuals suggests two motives. For one, individuals want to please
their audiences, so they attempt to match their self-presentation to their audience’s
expectations and preferences. For another, individuals want to enhance their self-concept,
so they try to match their self-presentation to their own ideal self as a means of self-
construction (Baumeister & Hutton, 1987, p. 71). Thus, researchers have identified both
external and internal factors as motivating strategic self-presentation. Others have argued
that people engage in impression management because they are naturally motivated to
maximize their rewards and minimize punishment by gaining social approval or avoiding
disapproval (Gollwitzer, 1986; Leary & Kowalski, 1990). This study posits that the
motivations for strategic categorization among individuals are similar to those of
organizations, which are also interested in gaining legitimacy and receiving favorable
evaluations from external audiences by meeting their categorical expectations.
Beyond meeting external audiences’ categorical expectations, organizations may
also engage in more political acts aimed at changing the audiences’ categorical
expectations. External audiences’ expectations of an organization stem from how the
organization is categorized in the first place, since a category, as “a meaningful
consensus about some entities’ features as shared by actors grouped together as an
audience” (Durand & Paolella, 2013, p. 1100), sets certain expectations about an
33

organization and constrains or enables organizational actions. Thus, if the external
audiences’ categorization of an organization somehow does not match, or is expected to
not match organizational identity, not only will the external audiences have difficulty in
evaluating the organization, but (perhaps even more importantly) the organization itself
will suffer from striving to meet the audiences’ expectations based on incorrect
categorization and perhaps even exacerbating their devaluation by external audiences.
Therefore, organizations are also interested in gaining legitimacy and receiving favorable
evaluations from external audiences by changing rather than meeting their categorical
expectations.
Responsive versus pre-emptive strategic categorization. An organization’s
need to meet or change external audiences’ categorical expectations can also coincide
with whether the stimuli to engage in strategic categorization already exist or are
expected.
In responsive strategic categorization, organizations react to existing stimuli by
meeting or changing external audiences’ categorical exportations. In pre-emptive
strategic categorization, organizations control an expected future evaluation from external
audiences by meeting or changing those audiences’ categorical expectations. These
responsive and pre-emptive strategic categorizations are similar to what earlier scholars
have termed remedial impression management (Elsbach & Sutton, 1992; Elsbach, 1994)
and anticipatory impression management (Elsbach, Sutton, & Pricipe, 1998; Graffin,
Carpetner, & Boivie, 2011), respectively, although the focus in strategic categorization is
not only on influencing external audiences’ perceptions but also those audiences'
categorization process and expectations.
34

Types of Strategic Categorization
Figure 1 illustrates the various kinds of strategic categorization that stem from the
motivations of meeting or changing audiences’ categorical expectations and whether the
stimuli to engage in strategic categorization already exist or are expected in the future.
In Quadrant I, organizations do not face any current stimuli but anticipate a future
evaluation from external audiences that will involve categorization. Also, organizations
are motivated to preemptively manage or change those audiences’ categorical
expectations. Thus, organizations in this situation will try to influence the upcoming
categorization by selectively highlighting category labels that they prefer in order to
change the category and resulting expectations they are assigned by external audiences.
For instance, entrepreneurial firms strive to influence how potential investors such as
venture capitalists categorize them in anticipation of future funding opportunities
(Granqvist et al., 2013). When such firms’ products and services are difficult to
understand by applying the established category structure, they will invoke certain
category labels to shape how they are categorized by future investors and even articulate
what to expect from their products/services. Porac et al.’s (1999) study on CEO
compensation also reflects this situation in that they find that organizations faced with
potentially negative evaluation selectively conveyed different industry categories to
change audiences’ expectation levels as a pre-emptive means of strategic categorization.
In Quadrant II, organizations also do not face any immediate stimuli but
anticipate a future evaluation from external audiences that will involve categorization.
Also, organizations are motivated to meet external audiences’ categorical expectations.
Thus, organizations in this situation will try to influence the upcoming categorization by
35

selectively highlighting category labels that best fit with the established category
structure that will be used by external audiences and will meet their expectations in turn.
For instance, entrepreneurial firms planning to go public already know what the financial
community expects from a public firm and will try to meet such expectations as closely
as possible. My empirical research presented in the next section proposed that firms in
this situation will adopt a more focused identity by spanning fewer numbers of categories
so that they can more readily fit into the existing category structure, that is, the industry-
based classification system.

Figure 1. Types of strategic categorization.
II
III IV
I
Motivation
Meeting Expectations Changing Expectations
Stimuli
Pre-emptive
Responsive
36

In Quadrant III, in contrast, organizations have already faced some stimuli that
have influenced external audiences’ categorization and subsequent evaluations. Also,
organizations are motivated to respond by meeting external audiences’ categorical
expectations. Thus, organizations in this situation will try to influence their current
categorization by selectively highlighting category labels that best fit with the established
category structure that has been used by external audiences. To provide one example,
Zuckerman (2000) examines how firms de-diversified their businesses when the stock of
those firms did not gain sufficient and coherent coverage from stock analysts. Such
divestiture, by making the companies more focused, was intended to highlight the firms’
commitment to meeting external audiences’ expectations and to help them regain
legitimacy in the stock market.
In Quadrant IV, organizations have already faced some stimuli that have
influenced external audiences’ categorization and subsequent evaluations. Also,
organizations are motivated to respond by changing external audiences’ categorical
expectations. Thus, organizations in this situation will try to change their categorization
by selectively highlighting category labels that they prefer in order to change the category
they have been assigned by external. For instance, when a certain market and thus its
market label gains currency, firms may claim membership in that category so as to
increase their appeal. In fact, several studies have shown that during the Internet bubble,
firms affixing dot.com to their firm name experienced a significantly positive stock
market reaction (Cooper, Dimitrov, & Rau; 2001, Lee; 2001). On a different note,
Elsbach and Kramer (1996) find that business schools highlighted different
37

organizational attributes or changed their comparison group when faced with an identity
threat from a new business school ranking system. Although the authors examine
strategic categorization as being more internally oriented, they illuminate a similar
mechanism at work.
Modes of Strategic Categorization
Although previous research has not directly examined the modes of strategic
categorization, researchers can gain some useful insights from related studies concerned
with defining the competitive landscape and managing the organizational identity change
process. For instance, Porac and Thomas (1990) suggest three creative recategorization
strategies that can be used when defining competitors. First, competitors can be redefined
by changing the level of inclusiveness to a higher or lower level. Second, competitors can
be horizontally redefined. Third, a new category can be created by recombining existing
categories. Corley and Gioia (2004) propose two ways in which organizational identity
can change: by changing the label used to describe the organization and by changing the
meanings associated with the existing label.
Based on insights from other category studies, I here propose several different
modes or paths that organizations can take to engage in strategic categorization. As
suggested above, strategic categorization involves highlighting an organization’s
preferred category label among available category labels. By making a particular
category label salient, an organization can influence external audiences to consider an
alternate way of categorizing it, and in turn change those audiences’ expectations in a
way that it prefers. There can be several different modes for such strategic categorization.

38

Figure 2. Modes of strategic categorization
Notes: Lower case letters denote category labels. Upper case letters denote less inclusive
category label. A letter followed by an apostrophe denotes primary category label.
Arrows represent strategic change in categorization.

Figure 2 graphically illustrates these different modes of strategic categorization,
which are next described in turn. First, an organization can adopt a different category

a
b
a
a b

A

a

a
b’
a’
b

a
b
c

x
We are a not b (or b not a).
We are A not a (or a not A)
We are ab’ not a’b (or a’b not ab’).
We are “a & b” not a (or a not “a & b”).
We are c.
We are x.
+
39

label that is not within the same vertical category structure with the existing label (We are
a (not b)). This horizontal category change may precede or follow any change in an
organization’s strategic direction. For example, Flickr, which is a photo sharing website
acquired by Yahoo! in 2005, originally started as an online role-playing game, although
the game’s features that allowed players to share photos while playing the game soon
became Flickr’s main focus. In such situations of such strategic change, active categorical
claim-making becomes the prominent categorization strategy.
Second, an organization can adopt a different category label that is within the
same vertical category structure with the existing label (We are a (not A) or we are A (not
a)). This vertical category change is similar to that examined by scholars from both the
cognitive psychological perspective (Porac & Thomas, 1990) and social psychological
perspective, more specifically, self-categorization theory (Turner, 1999). Organizations
engaging in strategic categorization can change the level of inclusiveness (broader or
narrower) by moving within the same vertical category structure. For instance, my
empirical research presented in the next section has found that entrepreneurial firms in
the Internet sector that adopt a more inclusive category label at the IPO stage as
compared to their pre-IPO category label to convey market growth momentum attract
more attention from the stock market.
Third, an organization can highlight an alternate category label among other
available category labels (We are a’b (not ab’)). This alternate category emphasis may
coincide with different external audiences’ being more or less important to an
organization over its life cycle. In the previously mentioned example of Tesla Motors,
which had both a clean tech label and an automotive label available, different category
40

labels were put forth depending on who became the most prominent stakeholders over
time. Similarly, Elsbach and Kramer (1996) have found that when faced with a threat to
their organizational identity from a new business school ranking, business schools
highlighted different aspects of their identity features than were highlighted in the new
ranking.
A fourth mode of strategic categorization involves adding an additional category
label (We are “a & b” (not a)) or deleting a category label from existing category labels
(We are a (not “a & b”)). By choosing to span more categories or to decrease the number
of categories spanned, organizations can communicate either a more focused or more
ambiguous identity. For instance, Vergne (2012) found that firms in the global arms
industry that faced stigma adopted additional non-stigmatized categories to take attention
away from the stigma and dilute negative associations, which he calls the process of
stigma dilution. On the other hand, my empirical research presented in the next section
have shown that entrepreneurial firms in the Internet sector that span fewer number of
categories than those prior to the IPO attract more attention from the stock market due to
a more focused identity that is valued more highly in the stock market.
A final mode of strategic categorization involves creating a new category label,
which can be done in one of two ways: by combining existing category labels (We are c:
a+b) or by creating an entirely new category label (We are ‘x’). Creating a new category
label by combining existing category labels is different from spanning multiple categories
in that the new category takes on a distinct categorical feature that is more than a simple
combination of two existing category labels. For instance, in their study of how Alessi
redefined its identity over time, Rindova et al. (2011) discovers that organizational
41

agency played a role in “asserting a distinctive identity by using categories from different
registers and combining them in claims of distinctiveness” (429). Studying French
gastronomy, Rao, Monin, and Durand (2005) investigates how chefs borrowed from a
rival category to create a hybrid category. Navis and Glynn (2010) have examined the
process by which a new market category, the satellite radio category, emerged with a
focus on both collective and organizational identities. As others have noted, however,
creating and legitimating a new category label is more nuanced than the previously
described strategies in that it requires a concerted effort of multiple constituents and deals
with such issues as collective identity and category emergence (Kennedy, Lo, &
Lounsbury, 2010). It is also important to note that the different modes suggested above
are not mutually exclusive and that one can take place simultaneously with others.
Ambiguity as a Strategic Categorization Device
Within the different types and modes of strategic categorization described above,
ambiguity can be used to facilitate strategic categorization. Unlike uncertainty, which
refers to insufficient information to make sense of a given situation, ambiguity implies
that there are multiple possible interpretations for a given situation or information. The
claim that organizations can use ambiguity as a strategic categorization device may sound
paradoxical, given that resolving ambiguity is generally viewed as the whole purpose of
categorization. Although research on ambiguity has been conducted within several
different research streams, it has commonly viewed ambiguity as something that needs to
be minimized and controlled. Some scholars have examined labeling and categorization
as ways of dealing with ambiguity (Ashforth & Humphrey, 1997; Porac et al., 1995),
while others taking a symbolic management perspective have investigated how
42

organizations engage in sensegiving activities to guide others’ interpretation of an event
or organizational actions toward the organization’s preferred interpretation (Rhee & Fiss,
2014).
This study argues, however, that strategic categorization may require a more
subtle framing act than simply changing one category label to another. For one thing, an
organization’s repertoire of available categories is constrained by its institutional context.
For another, the potential cost associated with a strategic categorization effort’s being too
noticeable or outlandish can be huge. Therefore, I propose that organizations can benefit
from imposing a certain level of ambiguity through strategic categorization.
Forms and Functions of Ambiguity
Category studies have recognized that ambiguity can take two forms: in
ambiguous categorization, an organization’s categorization can be ambiguous if it spans
multiple categories, while in an ambiguous category, a category label adopted by an
organization can be ambiguous when the category itself is lenient (i.e., has fuzzy
boundaries) or inclusive (i.e., is higher up in the hierarchical structure of categories). It is
important to distinguish between these two types of ambiguous category, as an inclusive
category label can be ambiguous in that there are many sub-categories nested within it.
Thus, when an organization uses a “communication” label to describe its organizational
identity, different audiences may interpret what it means to be in the communications
industry differently. On the other hand, a lenient category label does not necessarily mean
it is an inclusive label with nested sub-category labels. Instead, the notion of leniency
“captures the extent to which a label constrains affiliated organizations” because of a
43

label’s fuzziness while also considering “whether a label overlaps with many different
labels” (Pontikes, 2012, p. 93).
As previously noted, ambiguity can be a double-edged sword for organizations
when it comes to organizational identity and categorization. Prior category studies have
generally focused on the disadvantage of being ambiguous. The widely studied discount
that stems from spanning multiple categories is partly ascribed to ambiguity that is open
to multiple possible interpretations. For instance, Zuckerman (2004) argues that
ambiguous categorization is the reason incoherent stocks get devalued, because such
ambiguity leads various participants in the stock market to interpret any material
information in different ways. Such divergent interpretations, he claims, will lead to the
stock’s being followed by analysts with heterogeneous industry expertise, thus furthering
ambiguous categorization and devaluation. Accordingly, the general understanding in the
literature has been that “resolving ambiguity is an important part of the identity formation
process” (Gioia et al., 2013, p. 3).
Nonetheless, scattered studies within organizational identity and category studies
have illuminated how ambiguity can also play to the benefit of organizations. Albert and
Whetten (1985) appear to acknowledge the benefits of ambiguous categorization by
warning about the danger of overly precise or micro classification, which can become
quickly outdated as the organization changes over time. Zuckerman et al. (2003) also
note that complex identities can be preferable to simple identities because they are less
constraining and allow more flexibility. Meanwhile, at the product category level, Rosa,
Judson, and Porac (2005) propose that spanning multiple categories can be beneficial in
gaining product longevity, particularly given the flux in category structure and market
44

dynamics. In terms of ambiguous categories, studies of organizational identity change
have shown that a certain degree of ambiguity can be positive in that it provides
flexibility for organizational members (Clark, Gioia, Ketchen, & Thomas, 2010; Corley
& Gioia, 2004; Tripsas, 2009). Fiol (2002) also acknowledges that organizational leaders
can take advantage of ambiguity when continuous identity change is anticipated. Tripsas
(2009), discussing the trade-off between having a broad or a narrow identity, notes that
broad, robust identities provide flexibility for the organization because they allow
multiple interpretations of what constitutes a legitimate behavior for external audiences.
Tripsas (2009) further notes that a broad identity should be beneficial in an emerging
industry with a high level of uncertainty. Similarly, Pontikes (2012) claims that using
ambiguous labels was perceived as positive by early investors for its flexibility and
multivocality. Granqvist et al. (2013), examining how a label’s ambiguity influenced
executives of nanotechnology firms to use a hedging strategy through purposeful
ambiguous categorization, also demonstrate that ambiguity can be a symbolic
management device.
Integrating insights from previous studies that shed light on the role of ambiguity,
both in terms of ambiguous categorization and ambiguous category, I contend that
ambiguity can be a useful strategic categorization device. In similarly proposing that
ambiguity can be used as a strategy in organizational communication, Eisenberg (1984)
identified four functions of strategic ambiguity: promoting unified diversity, preserving
privileged position, fostering deniability, and facilitating organizational change.
According to Eisenberg, strategic ambiguity can promote unified diversity by fostering
the existence of multiple interpretations at the individual level while still attending to the
45

same goal at the organizational level. This involves strategically using language at
different levels of abstraction so that agreement can occur in the abstract while diverse
viewpoints can be preserved. Strategic ambiguity can also preserve privileged position
for already credible communicators since ambiguous communication amplifies existing
impression. In addition, strategic ambiguity fosters deniability in that it preserves future
options than clear communication. Finally, strategic ambiguity can facilitate
organizational change since ambiguously stated goals provide organizations with the
flexibility to change their operations over time. This study builds on and extends the
implications of his findings in at least two areas. First, while Eisenberg’s argument is
internally oriented, focusing on organizational members’ use of strategic ambiguity in
accomplishing their goals, this study’s focus on the use of ambiguity as a strategic
categorization device is more externally oriented, as it is intended to influence the
categorization process of external audiences. Second, this study adds to Eisenberg’s four
functions of strategic ambiguity by proposing that ambiguity in strategic categorization
can convey additional meaning that influences how an organization’s categorical
membership is interpreted by external audiences.
The idea that ambiguity in strategic categorization provides additional meaning to
external audiences when evaluating an organization’s categorical membership is related
to the connotation aspect of a label, that is, the underlying meaning system to which the
label refers (Granqvist et al., 2013; Weber, Heinze, & DeSoucecy, 2008). It is also related
to Smith’s (2011) finding from his study of hedge fund industry that identity can be used
as a lens through which information about an organization is interpreted. For instance, in
the case of ambiguous categorization in which ambiguity stems from spanning multiple
46

categories, previous research shows that such ambiguity either promotes flexibility
(Ashforth & Humphrey, 1997) or leads to devaluation (Zuckerman, 1999). Beyond that,
however, ambiguous categorization can also imply confidence or desperation, which may
in turn influence how external audiences evaluate ambiguous categorization. In the case
of an ambiguous category in which ambiguity stems from the category’s characteristics,
such as leniency or inclusiveness, the ambiguity of the category label can convey more
than the shared features and expectations of a category label, invoking perceptions such
as resourcefulness or growth potential (Rhee, 2014). Thus, this study argues that strategic
categorization that takes advantage of ambiguity can be effective in influencing external
audiences’ categorization process in that it is not only more subtle than changing from
one category to another, but can also affect audiences’ perceptions by providing meaning
beyond an organization’s categorical membership for audiences to make sense of the
categorization and organizational identity.
Enabling Conditions of Ambiguity-based Strategic Categorization
It is likely that organizational efforts at strategic categorization are at times
bounded and at others fostered by the organization and industry levels as well as by
audience characteristics. The current study pays particular attention to the conditions
under which ambiguity-based strategic categorization can be effective since the
paradoxical nature of ambiguity makes it important for organizations to understand the
conditions under which ambiguity can be effectively used as a strategic categorization
device. Drawing on insights from earlier studies, I discuss organizational age and status,
nascent market conditions, and audiences’ goals and expertise as the most prominent of
these enabling conditions.
47

Organizational age. Previous studies have shown that both young and old
organizations can benefit from taking on an ambiguous identity. Zuckerman et al. (2003),
examining actors’ career paths over time, argue that while having a simple identity is
important to gaining legitimacy at the outset, once actors achieve a certain level of
recognition for their capabilities, diversifying their roles further increase their value,
although the authors also acknowledge that once an actor is placed in a particular
category, taking on an additional category becomes extremely difficult. Ravasi and
Rekom (2003) also noted that young organizations need a coherent identity to secure
needed resources. On the other hand, Durand, Rao, and Monin (2007) argue that because
audiences have lower expectations for younger organizations, those organizations have
more flexibility in making code-violating changes and may even gain a greater increase
in their external valuations by doing so. Considering these different findings regarding
the role of the length of an organization’s tenure in the field, it appears that although
young organizations generally benefit from not having an ambiguous identity, the
greatest returns may also go to young organizations that either manage to be categorized
ambiguously or to take on an ambiguous label, even if, as Zuckerman notes (1999), the
associated risk may be high.
Organizational status. According to the literature on status, particularly that
regarding middle-status conformity (Phillips & Zuckerman, 2001), high-status
organizations can more confidently deviate from conventional behavior since their status
already provides legitimacy. For that reason, ambiguity conveyed by a high-status
organization is likely to be tolerated or even valued by external audiences. For instance,
Rao et al. (2005) propose that high-status organizations have “more latitude to be
48

original, and can borrow from a rival category” (p. 972). At the same time, according to
several researchers, low-status organizations can also choose to be ambiguous, given that
they are less likely to be considered by audiences anyway (Durand et al., 2007;
McFarland & Pals, 2005; Phillips & Zuckerman, 2001; Rao et al., 2005).
For instance, anecdotal evidence suggests that firms that have achieved status and
reputation before going public tend to use very general and somewhat ambiguous
descriptors in the Company Description section of their prospectus compared to those of
firms of comparatively lower status, which tend to use category labels that could be more
easily mapped to the SIC code. For Google, in its IPO in 2004, the first line of its
Company Description section read “Google is a global technology leader focused on
improving the ways people connect with information,” and for Facebook, in its IPO in
2012, the first line of the same section read “Our mission is to make the world more open
and connected.”
Nascent market conditions. Different industry stages can also influence how
effective organizations are to use strategic categorization. In particular, previous studies
have examined the role of ambiguity in nascent markets, which Santos and Eisenhardt
(2009) define as “business environments in an early stage of formation … characterized
by undefined or fleeting industry structure, unclear or missing product definitions, and
lack of a dominant logic to guide actions” (p. 2). Such uncertainty and ambiguity allows
for more ambiguity in organizations operating in nascent markets. For instance, it has
been shown that early in an industry’s emergence, when the category structure has not yet
been set and category expectations among external audiences are unclear, the penalty of
having an ambiguous identity is low compared to that in more established markets
49

(Glynn & Navis, 2013; Granqvist et al. 2013). Therefore, organizations would appear to
have the greatest opportunity to engage in creative categorization within nascent markets.
Nonetheless, it is important to note that in nascent markets, developing a collective
identity related to “what we do” may need to precede claims of “who we are” by
individual organizations (Kennedy, 2008; Navis & Glynn, 2011).
Role of audiences. According to Vergne and Wry (2014), an audience is “a group
of individuals or organizations that enters into a relationship of mutual dependence with
an organizational category” (p. 68). This relationship, they assert, is based on the
following characteristics:
(1) an audience attends to category members' offerings (e.g., products, jobs,
shares, suggested policy reforms, information, values) as part of a comparison set,
considering both the offerings of the category as a whole and, comparatively, of
the category's various members; (2) an audience directly or indirectly exerts
control over the material and symbolic output of category members; and (3) an
audience can reward or sanction category members. (p. 68)
Despite the important role audiences play in the categorization process, researchers have
only started to acknowledge that different audiences have different expectations and thus
different evaluation criteria. Noting this gap in the research, McKendrick, Jaffee, Carroll,
and Khessina (2003) point out that more research is needed to incorporate audiences into
current knowledge regarding categorization given that “the salient bases of identity are
likely to be quite different for different external audiences” (p. 87). Navis and Glynn
(2011) also argue that more attention to an audience’s profession and interests will
enhance understanding of their sensemaking process.
50

In this study, I pay particular attention to the goals and knowledge of the intended
audience, for two main reasons. First, audiences’ goals have huge implications for how
they perceive ambiguity. Durand and Paolella (2013) emphasize the importance of
understanding goal-based categorization because audiences focus their attention on
different categorical dimensions and may disagree on their assessments depending on
their goals. When a target audience is pursuing an ad hoc goal, it is likely to make cross-
category comparisons to identify the service or product that will best assist them in
achieving their goal. For instance, when investors are searching for firms to include in
their growth stock portfolio, they would not necessarily compare firms within the same
industry but search across different industries to find stocks that are most likely to fulfill
their goals (Benner, 2007). More recently, Pontikes (2012) has distinguished between two
types of audiences: market-takers, who consume or evaluate goods, and market-makers,
who construct markets by developing new niches and enforcing boundaries. Pontikes’
(2012) analysis of software firms finds that market-makers are more tolerant of ambiguity
than market-takers, a difference explained by their different goals. Thus, if an audience’s
goals allow for cross-category comparison, ambiguous categorization or using an
ambiguous category as a way of strategic categorization can benefit organizations more
than a clearer one.
Second, understanding an audience’s knowledge is important because category
labels are perceived and processed differently depending on the audience’s knowledge of
categories and category structure (Durand & Paolella, 2013; Vergne & Wry, 2014). More
specifically, Kovács and Hannan (2010) propose that an audience’s expertise will
influence how it perceives category spanning because experts perceive categories as more
51

fuzzy and will be more tolerant of category spanning than those with less knowledge. On
the other hand, the cognitive psychology literature has shown that experts have a more
elaborated category structure than novices (Murphy & Lassaline, 1997). Both findings,
however, indicate that using ambiguity as a strategic categorization device can result in
different outcomes depending on whether the targeted audiences are novices or experts.
Discussion and Conclusion
The purpose of this paper has been to provide insight into why and how
organizations engage in strategic categorization and to establish a new research agenda
for exploration. In doing so, it makes several contributions.
First, it advances the theoretical understanding of categories and categorization by
integrating macro and micro perspectives on categorization. In particular, by identifying
complementary views from both the sociological and the cognitive and social
psychological perspectives, this paper makes the novel claim that organizations can
influence the categorization process by external audiences. This approach is in sharp
contrast to previous studies based on the sociological perspective of categorization in that
it no longer considers the categorization process as entirely exogenous and argues that
organizations can actively shape their categorization. Second, this study also integrates
the vertical structure of categories into the horizontal structure of categories that has been
the main focus of studies based on the sociological perspective. Reinvigorating interest in
the vertical category structure and how it can work together with the well-established
insights regarding horizontal category structure is another contribution of this study.
Third, in theorizing how organizations can influence external audiences’ categorization
process by categorical claim-making, this study reexamines and strengthens the link
52

between the literatures on categorization and on organizational identity. In particular,
treating organizations as social actors that actively engage in shaping their own
organizational identity within institutional constraints also has implications for the
institutional entrepreneurship literature by examining the “endogenous drivers of change”
(DiMaggio, 1988; Fligstein, 1997; Glynn, 2008; Thornton, Ocasio & Lounsbury, 2012, p.
147).
Fourth, this study advances knowledge of possible paths that organizations can
take to accomplish strategic categorization, thus answering to Durand and Paolella’s
(2013) call to develop “strategies defined at the organization level as 'theories about
competitiveness that help organizational members to select among available resource
utilizations and exchange modes'” (1116). Fifth, the current study brings the role of
ambiguity to center stage of discussions of strategic categorization. Proposing ambiguity
as a strategic categorization device required seeing past the paradoxical role that
ambiguity plays in the categorization literature. That is, while earlier studies on
categorization have viewed ambiguity negatively, this study builds upon findings from
several streams of research to explicate how organizations can manage the level of
ambiguity or even vigorously promote ambiguity through strategic categorization so as to
influence external audiences’ categorization process. In doing so, this study also
recognizes ambiguity arising from both ambiguous categorization and ambiguous
categories and also acknowledges the conditions in which ambiguity can be an effective
strategic categorization device.
Thus, the current study provides a more complete understanding of the
categorization process by highlighting the active role of organizations in strategically
53

influencing categorization and their identity in what it refers to as categorization work. In
particular, this study examines Zuckerman’s (2000) concerns regarding using impression
management tactics in shaping organizational identity. By establishing ways in which
organizations can strategically influence their categorization process within the limits of
institutional constraints, particularly by using ambiguity as a strategic categorization
device, this study also suggests exciting new research opportunities in strategic
categorization, which are discussed next.
Future Research Directions
Although many avenues of future research are suggested by this paper’s
theorizing of strategic categorization, I note six that seem particularly suited for
advancing the ideas presented here. First, although this paper argues that a focal means of
strategic categorization is labeling, in which organizations use language to selectively
highlight their preferred category label, I recognize that organizations can also use other
approaches for successful strategic categorization. For instance, organizations can
manage their organizational features to make certain features more salient than others to
influence the categorization process of external audiences, as shown in Kim and Jensen’s
examination (2011) of how opera companies shift the order of their opera repertories to
influence the their perceived market identity without changing the products that compose
the portfolio. Hsu and Grodal (2014) also acknowledge that “not only strategic claims,
but also the relationship between what producers claim and what features they actually
adopt, systematically co-evolve with the cognitive constraints imposed on them by
category system” (p. 36). Thus, one area for future research is to investigate the
54

interdependent effect of changing organizational features and making categorical claims-
making on influencing the categorization process of external audiences.
Second, future research should also examine the more nuanced approach to
categorization to understand alternative approaches to strategic categorization. For
instance, drawing on the composite theory taken from cognitive psychology, Wry et al.
(2013) argue that audiences’ perception of categorization are influenced not by just the
spanning of multiple categories but also the direction of such spanning and the degree to
which core versus peripheral identity markers are affected. Thus, future research could
also examine how the sequence of categorization (Leung, 2014) or the core/peripheral
identity markers can be strategically used to influence the categorization process. In
addition, it is likely that different conditions will be found to shape which route an
organization chooses to take in their strategic categorization. Based on their study of the
U.S. film market, Zhao, Ishihara, and Lounsbury (2013) suggest that organizations can
mitigate illegitimacy discount arising from category spanning by engaging in strategic
naming, particularly those name that signals reputation, to gain audience attention.
Hence, refining the notion of strategic categorization by exploring the relative
effectiveness of different paths seems fruitful.
A third suggested line of research would build upon the concept of collective
identity. Although the current study has focused on organizational identity by theorizing
how organizations can independently influence their external audiences’ categorization
process to achieve a desired outcome, strategic categorization can also have implications
for organizations’ collective identity, as legitimation of a collective identity is also
critical to individual organizations’ survival and growth (Kennedy, 2008; Navis & Glynn,
55

2010; Wry, Lounsbury, & Glynn, 2011). Thus, an interesting extension of this and prior
studies on category emergence would be to more closely examine how organizations can
establish a “collective identity as meaningful and coherent category” by “justifying the
group's legitimacy and helping to coordinate its expansion” (Wry et al., 2011, p. 450).
Fourth, exploring the consequences of strategic categorization beyond its
influence on external audiences’ categorization process could also broaden understanding
of categorization. For example, future researchers might examine the consequences of an
individual organization’s strategic categorization for other organizations that occupy the
original category. They might explore, for instance, whether strategic categorization by
one organization will lead to a widespread adoption of such strategy, resulting in a shift
in the collective identity of the industry as a whole, or if it will threaten the remaining
organizations, leading them to instead reinforce their original collective identity (Negro,
Hannan, & Rao, 2011). In addition, the strategic categorization of an organization may
also affect audiences other than that initially targeted by the organization, such as the
media. The media, unlike other audiences, are known to be both a sensemaker and a
sensegiver when it comes to categorization and organizational identity formation
(Deephouse, 2000; Kennedy, 2008; Lounsbury & Rao, 2004), and thus it might be
fruitful to investigate how the strategic categorization is received and interpreted by the
media and what role the media play in fostering or undermining an organization’s
strategic categorization. This approach could be further extended to incorporate other
audiences to more closely examine categorization as collective work that involves the
political and cultural interests of multiple audiences (Tyllström, 2013).
56

Fifth, future studies could examine how strategic categorization can also help
organizations manage their status by building on the idea that not only organizations but
categories have status (Sharkey, 2014). While organizational status influences whether
and how organizations can engage in strategic categorization, further investigation is also
needed into whether strategic categorization can also influence status. As Jensen (2010)
notes regarding market identities, status is another important dimension that vertically
situates an organization in the social structure. Indeed, Waguespack and Sorenson (2011)
suggest that “categories can serve competitive purposes when membership in them varies
in value” (p. 550). Although the current research looks only at how status can be gained
by affiliating with other high-status actors (Podolny, 1993; Pollock, Chen, Jackson, &
Hambrick, 2010), it could be illuminating to examine whether strategic categorization
can influence an organization’s status in the same way that it influences its organizational
identity. Recent work by Sharkey (2014) sheds some light here, as it finds that different
categories have different statuses, suggesting that category-based status can influence
how external audiences perceive and evaluate an organization.
Finally, considering strategic categorization more dynamically over time could
also make a valuable contribution to current knowledge. Albert and Whetten (1985), in
their seminal work on organizational identity, acknowledged that “we can further develop
the issue of identity change over time by means of the following diagram utilizing four
common life cycle events (Birth, Growth, Maturity, Retrenchment) as markers for the
temporal dimension” (p. 275), an observation that still holds. Prior studies have also
noted a need for more research on how organizational identity and categories may vary
over time over an organization’s life cycle to address the strategic needs of different
57

audiences (Durand et al., 2007; Foreman & Whetten, 2012; Rindova et al., 2011). This
issue is particularly salient given not only that different organizational aspects are
considered stage-appropriate but that different audiences with diverse expectations also
become more or less relevant to an organization at each stage. Thus, taking an
organizational life cycle approach to strategic categorization offers an interesting avenue
for future research.
The considerable stake that organizations have in how they are categorized by
external audiences makes it critical that researchers identify ways in which organizations
can strategically engage in the process of categorization. By identifying how
organizations can strategically influence their categorization process within the limits of
institutional constraints, particularly by using ambiguity as a strategic categorization
device, this study opens up exciting research opportunities in strategic categorization.

58

ESSAY 2: Managing Categories: Categorical Sensegiving by
Vertical and Horizontal Changes in Self-Categorization
Abstract
This study extends prior studies on categories and categorization by examining
how organizations can strategically manage self-categorization labels to meet external
audiences’ expectations and receive favorable evaluations. Specifically, by integrating
the cognitive psychological perspective on categorization which emphasizes the vertical
structure of categories and the sociological perspective on categorization which
emphasizes the horizontal structure of categories, the current study argues that
organizations can strategically manage the degree of category inclusiveness and the
number of categories spanned. It is further argued that the effect of strategic
categorization on external audiences’ evaluation depends on the knowledge level of
heterogeneous audiences and the prevailing logic of valuation in the market. I tested these
ideas on firms that went through the initial public offering (IPO) process in the Internet
sector between 1997 and 2012. As predicted, organizations that adopt more inclusive
categories and fewer numbers of categories at IPO compared to pre-IPO are more
appealing to investors. Further, the effect of strategic categorization differs among
institutional and retail investors as well between Internet bubble and post bubble periods.

Keywords: categories, strategic categorization, category spanning, category
inclusiveness, initial public offering (IPO), Internet bubble
59

Introduction
The management and organizational theory literatures have shown a growing
interest in examining the antecedents and consequences of categorization (see for a
review, Negro, Koçak, & Hsu, 2010; Vergne & Wry, 2014). This research has
acknowledged that categorization influences external audiences’ perceptions of the
legitimacy and their expectations of an organization, and therefore how they categorize
that organization can have huge consequences for its survival and growth. One of the
main arguments made by earlier category studies is that organizations that do not readily
fit into an external audiences’ pre-established category structure will be devalued
(Zuckerman, 1999). In particular, such studies have concluded that ambiguous
categorization, which entails spanning multiple categories, results in such devaluation, a
finding demonstrated within such different contexts as novice actors (Zuckerman, Kim,
Ukanwa, & Rittmann, 2003), stocks (Zuckerman, 2004), and feature films (Hsu, 2006;
Hsu, Hannan, & Koçak, 2009). Recent studies, however, have uncovered situations in
which ambiguous categorization does not necessarily lead to devaluation. For instance,
researchers have found that the status of classification system’s development (Reuf &
Patterson, 2009), contrast among the categories spanned (Kovács & Hannan, 2010),
different audiences (Pontikes, 2012), and the sequence of category spanning (Leung,
2014; Wry, Lounsbury, & Jennings, 2013) influence the extent to which external
audiences devalue organizations as a result of ambiguous categorization.
Despite its recognition of the huge stakes involved, the existing research on
categorization has not paid enough attention to an organization’s role in influencing how
it is categorized by external audiences (for exceptions, see Granqvist, Grodal, & Woolley,
60

2013; Vergne, 2012). Prior studies have largely assumed that organizations’ categories
are predetermined: specifically, that categories, as part of an organization’s external
environment (Vergne & Wry, 2014), are exogenously imposed upon organizations by
external audiences based on those organizations’ actual resources and capabilities (e.g.,
Hsu & Hannan, 2005; Hannan, Pólos, & Carroll, 2007). This assumption, however, has
overlooked the possibility of a more bilateral categorization process in which an
organization’s self-categorization and external audiences’ categorization of the
organization may co-construct the organization’s categorization. Recently, a number of
studies have pointed to the need to examine organizations’ potential ability to
strategically manage their categorization (e.g., Durand & Paolella, 2013; Vergne & Wry,
2014), arguing that organizations “often try to shape category systems and influence the
choice of categories into which they are classified” (Negro et al., 2010, p. 4).
This study is intended to help fill this gap in current understanding of the
categorization process by developing theoretical arguments and presenting empirical
evidence regarding strategic categorization—that is, the process and consequences of an
organization’s active role in shaping their categorization to influence its categorization
and subsequent evaluations by external audiences. In particular, this study defines
strategic categorization as an organization’s intentional and socially attentive categorical
claim-making that shapes its organizational identity by influencing the categorization
process of external audiences to attain a desired outcome. First, to investigate
organizations’ role in strategic categorization, this study draws on both a cognitive
psychological perspective that focuses on organization self-categorization (Porac,
Thomas, Wilson, Paton, & Kanfer, 1995) and a social actor perspective regarding
61

organizational identity (Whetten, 2006) to shed light on the role of organizations’ agency
within categorization process. Second, to identify the potential modes of strategic
categorization, this study also integrates insights from cognitive and social psychological
perspectives that assume a vertical structure of categories and focus on the level of
category inclusiveness selected by organizations (Porac & Thomas, 1990) and individuals
(Turner, 1999) with findings from the currently dominant sociological perspective that
assumes a horizontal structure of categories and examines the number of distinct
categories spanned by organizations (e.g., Zuckerman, 1999). Integrating these two
perspectives can redirect attention to how organizations are able to influence the
categorization process. In such a view, as Glynn and Navis (2013) claim, “organizations
are seen to claim identities at different (vertical) levels of category specificity, from
superordinate to basic level categories, and to pull in distal (horizontal) categories that
can introduce legitimate variation into already established categories” (p. 1129).
Finally, this study proposes a bilateral perspective on the categorization process
that considers both an organization’s self-categorization and external audiences’
categorization of the organization by incorporating the role of audience heterogeneity and
its effect on strategic categorization into its analysis. Specifically, it considers audience
heterogeneity in terms of an organizational life cycle during which certain audiences
become more or less important to an organization over time and of those audiences’
different levels of knowledge regarding specific categories and category structure. In this
way, the current study aims to develop a more complete understanding of the
categorization process by considering the categorical sensegiving by organizations and
the categorical sensemaking by external audiences (Navis & Glynn, 2010).
62

Empirically, this study investigates firms that went through the initial public
offering (IPO) process in the Internet sector between 1997 and 2012 to examine how such
firms strategically use self-categorization labels to attract attention and receive favorable
valuations from potential investors, who consist mostly of institutional and retail
investors. An IPO is an ideal context in which to study strategic categorization. Firms are
known to prepare for going public by presenting themselves as attractive as possible to
potential investors. In particular, firms pay great attention to positioning themselves in
the market and selecting the most appropriate market category labels in order to be
favorably perceived and evaluated by their potential investors. Interviews with important
stakeholders in the IPO process including underwriters, lawyers, venture capitalists, and
IPO consultants also revealed that firms spend a great deal of time deciding on how to
position themselves by carefully deciding on their categorization. Thus, a firm’s self-
categorization at the time of the IPO not only represents the firm’s identity based on its
underlying resources and capabilities but also symbolizes the firm’s strategically crafted
identity reflecting how the firm wants to be perceived and evaluated by external
audiences.
Theoretical Background
To explore organizations’ roles in strategic categorization, I integrate insights
from several streams of research. First considered is the cognitive psychological
perspective on categorization, which focuses on how organizations engage in self-
categorization to make sense of their external environment (e.g., Porac et al., 1995).
Second, the social actor perspective of organizational identity (e.g., Whetten, 2006) is
introduced to highlight the categorical claiming of organizations in constructing their
63

organizational identity. Third, based on the two preceding theoretical arguments, I
suggest that organizations can choose to change their self-categorization by selecting and
affiliating with different category labels. In doing so, prior studies that have investigated
such strategic categorization possibility are illustrated. Finally, by integrating insights
from micro perspectives on categorization that assume a vertical structure of categories
and focus on the level of category inclusiveness selected by organizations (e.g., Porac &
Thomas, 1990) and individuals (e.g., Turner, 1999) with findings from the currently
dominant macro perspective that assumes a horizontal structure of categories and
examines the number of distinct categories spanned by organizations (e.g., Zuckerman,
1999), I propose that organizations can choose to be defined at different levels of
inclusiveness vertically or span more or fewer categories horizontally in their strategic
categorization.
Self-Categorization and Organizational Sensemaking
Whereas studies taking a sociological perspective regularly examine the
disciplining role of categorization, studies taking a cognitive psychological perspective
instead focus on the sensemaking role of categories. In particular, research taking this
view examines categories as cognitive maps that managers use to make sense of their
environment, mainly their organization’s relative position within the competitive
landscape (Porac & Thomas, 1990, 1994; Porac, Thomas, & Baden-Fuller, 1989; Porac et
al., 1995; Porac & Rosa, 1996). Thus, the cognitive psychological perspective suggests
that an organization takes an active role in its categorization, self-selecting a category or
categories that it believes would best facilitate its sensemaking (e.g., Porac et al., 1995).
Although the self-categorization suggested by the cognitive psychological perspective is
64

useful to understanding, it is also internally oriented. That is, it views organizations as
using self-categorization to facilitate their own internal business functioning rather than
to communicate with or influence external audiences. To overcome that shortcoming for
the purposes of this study, I employ another perspective on organizations’ role in self-
categorization that focuses on issues of organizational identity, as discussed next.
Self-Categorization and Organizational Identity
Studies on organizational identity, particularly those conducted by Whetten and
colleagues, argue that “organizations define who they are by creating or invoking
classification schemes and locating themselves within them” (Albert & Whetten, 1985, p.
267). In particular, this research has viewed organizational identity as a type of self-
defining attribute, particularly as a set of categorical claims made by an organization
(Foreman & Whetten, 2012; Foreman, Whetten, & Mackey, 2012; Whetten & Mackey,
2002). This view of organizational identity, which is called the social actor perspective,
recognizes the active role of organizations in shaping their identity through categorical
identity claims.
According to this research, such categorical identity claims take place through the
use of labels (e.g., Ashforth & Humphrey, 1997; Graqvist et al., 2013; Pontikes, 2012;
Wry, Lounsbury, & Glynn, 2011). Ashforth and Humphrey (1997) define labels as
“signifier[s] of a given object [that] typically activate a set of cognitions (and related
affect) about the object” (p. 43). According to the authors, labels act as “a critical vehicle
for interpreting, organizing, and communicating experience within organizations, and, in
turn, for guiding experience” (p. 43). In their study of the role of labeling in the symbolic
management of entrepreneurial firms in the nanotechnology market, Granqvist et al.
65

(2013) distinguish between the denotations of a label, which constitute its categorical
reference, and the connotations of the label, which are the underlying meaning systems to
which a label refers. Thus, labels not only signify categorical membership and inform
external audiences about an organization’s characteristics, but are also a powerful
rhetorical device that imposes certain meanings and serves as a frame for interpretation
(Ashforth & Humphrey, 1997).
Change in Self-Categorization and Categorical Sensegiving
As earlier research has shown, organizations can also change their self-
categorization by selecting and affiliating themselves with different category labels. Such
actions can be considered an act of categorical sensegiving, that is, “the process of
attempting to influence the sensemaking and meaning construction of others toward a
preferred redefinition of organizational reality” (Gioia & Chittipeddi, 1991, p. 442), and
thus strategic, when an organization changes its self-categorization to respond to or pre-
emptively influence external audiences’ categorization of the organization, as opposed to
when an organization changes its self-categorization to resolve a misalignment between
its organizational identity and internal business operations due to strategic changes (e.g.,
Corley & Gioia, 2004). Previous research also notes that changes in self-categorization
can take place without making any actual changes to an organization’s underlying
resources and capabilities, as the mere act of claiming of a category label can influence
how external audiences perceive and evaluate the organization (e.g., Granqvist et al.,
2013; Leung & Sharkey, 2014; Markman & Ross, 2003).
To summarize, organizations can define their identity by self-categorization,
which involves categorical identity claims. Organizations can claim a categorical identity
66

by labeling, as a label can convey underlying meanings of a category beyond indicating
the organization’s categorical membership. When organizations are keen to avoid
potential devaluation and garner favorable evaluations from external audiences, they can
choose to change their self-categorization by selecting and affiliating with different
category labels—that is, through categorical sensegiving. Just as framing can focus the
attention of target audiences on certain aspects of an organizational action and reflect the
organization’s preferred way of interpreting that action (Fiss & Zajac, 2006; Rhee & Fiss,
2014), such categorical sensegiving can convey an organization’s preferred
categorization to external audiences.
Theoretical Foundations of Strategic Categorization
A number of prior studies that have not directly addressed the notion of strategic
categorization have nonetheless examined how organizations can use self-categorization
strategies to influence external audiences’ perceptions and evaluations. For instance,
Porac, Wade, and Pollock (1999) examine how organizations strategically use industry
categories to define their identity when faced with a potentially negative valuation
regarding CEO compensation. Specifically, the authors find that such firms selectively
define their comparison group by broadening industry boundaries as a self-protective
measure. In doing so, they note, categories are “laced with considerable political capital”
(p. 113). Lamertz, Heugens, and Calmet (2005), examining how firms manage their
organizational image within the Canadian beer brewing industry, claim that “the
categorization that results from such attribute claims is tantamount to claiming legitimacy
in a strategic sense” (p. 823).
More recent studies have examined organization’s active involvement in
67

categorization in regards to how new categories emerge as well as how entrepreneurial
firms influence their categorization by outside audiences. For instance, Khaire and
Wadhwani (2010) illustrate the active role of various market actors in studying the
emergence of a modern Indian art as a new market category. Navis and Glynn’s (2010)
investigation of how entrepreneurial firms participating in the satellite radio market have
actively shaped both their collective and organizational identities demonstrates that
entrepreneurial firms shape their identities by making categorical claims. Granqvist et al.
(2013), taking a symbolic management perspective to investigate how executives of
nanotechnology firms opportunistically use labeling strategies, discover that executives
use three labeling strategies—claiming, disassociating, and hedging—to influence their
firm’s categorization by audiences.
Thus, while some previous research has hinted at strategic categorization,
category studies taking the more prominent sociological perspective have not yet fully
integrated insights from the micro perspectives on categorization. Below, I turn to the
cognitive and social psychological perspectives on categorization to develop a more
systematic approach to understanding the process of strategic categorization, particularly
by positing two modes of strategic categorization.
Modes of Strategic Categorization: Vertical and Horizontal
Researchers taking a cognitive psychological perspective have drawn insights
from the vertical structure of categories as opposed to the horizontal structure of
categories concerned with the “segmentation of categories at the same level of
inclusiveness” (Rosch, 1978, p. 30). This research has identified three vertical levels of
categories based on their level of inclusiveness along the categorical structure:
68

superordinate, basic, and subordinate (Rosch, 1978; Rosch, Mervis, Gray, & Johnson,
1976). The superordinate level is the most inclusive level, in which superordinate
categories share few common attributes among themselves. The subordinate level is the
least inclusive category level, in which subordinate categories share most of their
attributes with other subordinate categories nested in the same basic level category.
Between these two levels, the basic level “can be seen as a compromise between the
accuracy of classification of a maximally general level and the predictive power of a
maximally specific level” (Murphy 2004, p. 210). Generally considered the most relevant
level, basic level categories are “those which carry the most information, possess the
highest category cue validity, and are, thus, the most differentiated from one another”
(Rosch et al., 1976, p. 382).
Researchers taking the social psychological perspective, particularly those
examining the self-categorization of individuals, have also shown that an individual’s
categories are not fixed and can be simultaneously defined at different levels of
inclusiveness, depending on the salience of the categories within a given context (e.g.,
Turner, 1999). For example, a person can be categorized as a scientist or a biologist,
wherein scientist is a more inclusive social identity than while biologist is a less inclusive
personal identity. Turner and colleagues demonstrate that variations in self-categorization
are influenced by the relative accessibility of a particular self-category, such as its
relevance and usefulness, and the fit between the category and reality (e.g., Reynolds,
Turner, & Haslam, 2003; Turner, 1999).
Researchers can therefore derive at least two modes of strategic categorization by
combining these perspectives. First, as implied by the sociological perspective on
69

categorization, organizations can span more or fewer categories horizontally (Vergne,
2012). An organization doing so will increase or decrease the perceived ambiguity of its
organizational identity among external audiences. Second, as suggested by the cognitive
and social psychological perspectives on categorization, organizations can choose to be
defined at different levels of inclusiveness vertically. An organization doing so will
convey a broader or narrower organizational identity to external audiences.
Empirical Setting: Initial Public Offerings in the Internet Sector
An initial public offering (IPO) is an important milestone for firms: It marks a
transition from being a privately held firm to a publicly traded firm and thus generates
huge attention, “as this generally represents the first time that firm-specific information
will be made available to the public” (Daily, Certo, Dalton, & Roengpitya, 2003, p. 271).
Moreover, an IPO provides financial resources to fuel future survival and growth and
allows founders and other initial shareholders to liquidate their holdings and create
wealth (Certo, Holcomb, & Holes, 2009; Daily et al., 2003). Due to their novelty,
however, firms can suffer from a “liability of market newness,” which refers to the
“discount that investors place on IPO firms because these firms have not demonstrated an
ability to cope effectively with the demands of public trading” (Certo, 2003, p. 433).
Several aspects of IPOs in general and in the Internet sector in particular make
them an ideal context in which to examine the effect of strategic categorization. First, as
noted earlier, firms going public attempt to present themselves as appealingly as possible
to attract potential investors. Second, issuing firms in the Internet sector have
considerable latitude in choosing category labels for their self-categorization, as there is
not yet an official classification system for firms in the Internet sector. The widely used
70

SIC code has not been updated to reflect the development of the Internet sector. As a
result, this study assumes that an issuing firm’s self-categorization observed at the time of
the IPO reflects strategic categorization efforts by that firm.
A third factor that makes IPOs a particularly fruitful context for the purposes of
this study is that investors are more likely to be influenced by information provided by an
issuing firm during an IPO than in other contexts (Bhabra & Pettway, 2003; Hanley &
Hoberg, 2010). The newness and lack of information about IPO-issuing firms may also
give those firms more room to influence potential investors’ categorization and
subsequent evaluations. Firms in the Internet sector are particularly difficult to valuate
due to their intangible assets and absence of positive earnings (Bartov, Mohanram, &
Seethamraju, 2002; Higson & Briginshaw, 2000). In 2000, for instance, less than 20% of
issuing firms had positive earnings before going public (Loughran, 2002; Schultz &
Zaman, 2001). Therefore, research has shown that investors tend to focus on nonfinancial
measures and signals of future growth prospects (Demers & Lev, 2001), which are more
likely than financial measures to be influenced by an issuing firm’s sensegiving. Fourth,
an IPO provides a natural opportunity to investigate the effect of heterogeneous
audiences on organizations’ strategic categorization. As noted earlier, the issuing firm’s
external audience during an IPO includes new investors who have markedly different
characteristics from one another and from pre-IPO investors such as venture capitalists.
And fifth, the period selected for this study allows an examination of how changes
in the prevailing logic of valuation among IPO investors influence the effect of strategic
categorization. This study encompasses both the Internet bubble and post bubble period,
one of the most dramatic periods in the stock market’s history. In particular, during the
71

Internet bubble period, which was distinguished by its unprecedented level of
underpricing,
8
investors were driven by the promise of future growth rather than by
profitability and followed the logic of “grow big fast” or “growth at all costs” without
having clear methods for valuing Internet stocks (Cooper & Rau, 2003; Goldfarb, Kirsch,
& Miller, 2007; Jain, Jayaraman, & Kini, 2008).
Prior studies that uncovered the logic of “grow big fast” point to the importance
of an issuing firms’ signaling future growth prospects to external audiences when going
public. One of the themes that repeatedly emerged during the interviews I conducted for
this study was the importance of an issuing firm’s positioning itself for the IPO. In
particular, the terms total addressable market and total available market (TAM) were
often mentioned as a factor in valuing an issuing firm, by which the interviewees referred
to the revenue potential of a product or service if it were to attract all of the customers in
the market. One of the lawyers I interviewed, who was involved in major IPOs in the
Internet sector during the late 1990s, observed that
I think [there is] a certain desire from the investment community to get a piece of

8
There has been continuous debate over whether underpricing is a positive or negative outcome for the
issuing firm (Daily et al., 2003; Ritter & Welch, 2002). Many prior studies have examined underpricing as
a potentially unfavorable outcome for the issuing firm because less capital is derived (e.g., Arthurs,
Busenitz, Hoskisson, & Johnson, 2009; Bruton, Chahine, & Filatotchev, 2009). However, Certo, Covin,
Daily, and Dalton (2001) caution that it is difficult to discern whether underpricing is a generally positive
or negative phenomenon since such evaluation depends on the stakeholder in question. This study defers
any a priori judgment about underpricing, but acknowledges prior studies that have investigated
underpricing as a potentially favorable outcome, particularly for Internet IPOs. For instance, underpricing
is known to have a marketing effect as it generates publicity and attracts attention from the media as well as
analysts (Aggarwal, Krigman, & Womack, 2002; Cliff & Denis, 2004; Demers & Lewellen, 2003; Habib &
Ljungqvist, 2001). Brau and Fawcett (2006), in their survey of CFOs, note “high-tech firms view an IPO
more as a strategic reputation-enhancing move than as a financing decision” (p. 400). Popular press also
regularly report firms that do not have a “pop” on the first trading day as failed cases of IPO. Issuing firms
are also found to be unconcerned, or even satisfied about underpricing (Krigman, Shaw, & Womack, 2001;
Loughran & Ritter, 2002), since the management of an issuing firm discovers to be much wealthier than
expected, as explained by the prospect theory.
72

a company that they believe has great growth opportunity, … [where] there’s a
huge total addressable market. I think that there’s a belief that financial
performance at the bottom line will also come if it’s not there already.
As a result, as Higson and Briginshaw (2000) put it, “investors are focused on growth
prospects for the firms, but realistic analysis about future profitability has been neglected
in what will be an increasingly competitive world” (p. 10).
Hypothesis Development
As organizations are dependent on external stakeholders for resources, they have
to be well perceived by and be responsive to the expectations of their external audiences
(Oliver, 1991). In the IPO setting, in particular, issuing firms need to position themselves
in line with potential investors’ expectation to gain attention from them. Based on the
above conclusions drawn from the previous research, this study posits five sets of
hypotheses regarding how firms can influence potential investors attention by
strategically managing self-categorization, each of which is discussed below.
Vertical Categorization and Change in Category Inclusiveness
As noted, the cognitive psychological perspective on categorization suggests that
subjects can be categorized at different levels of inclusiveness to aid sensemaking (Porac
& Thomas, 1994; Porac et al., 1999; Rosch, 1978). Studies in cognitive psychology have
investigated how different levels of inclusiveness can be strategically used, examining,
for instance, the role of linguistic abstractness on how people describe the positive and
negative actions of in-group versus out-group members or when positive or negative
information is communicated to individuals with different attitudes (Fiedler, Bluemke,
Friese, & Hoffman, 2003; Holtgraves, 2010). At the organizational level, Porac and
73

Thomas (1990) posit that organizations can choose to be defined at a different level of
inclusiveness, that is, to make “vertical shifts to a different level of abstraction” as a
creative way to recategorize themselves (p. 234).
Self-categorization theory in the social psychology literature similarly holds that
individuals’ categories are not fixed and can be simultaneously defined at different levels
of abstraction or inclusiveness, depending on the salience of the categories within a given
context (Turner, 1999). More recently and more relevant to this study, Roberts (2005) has
developed a social identity–based impression management perspective in which he
argues that individuals strategically invoke social categories “to communicate favorable
attributes, leverage positive group affiliations, and counteract the impact of negative
stereotyping on others' perceptions” (p. 694). Roberts also identifies two ways of
performing social identity–based impression management: recategorizing, in which
individuals change the social categories to which they are assigned, and enhancing
positive distinctiveness, in which individuals increase the positive valence of the meaning
of the group with which they are associated. Applied to the organizational level, firms
may choose a self-categorization label at the level of inclusiveness that will be more
favorably evaluated by external audiences.
9

Similarly applying the concept of category inclusiveness to the organizational
level, I argue that organizations can also change the degree of category inclusiveness in

9
I acknowledge some concerns about the legitimacy of borrowing theories that explain psychological
phenomena for organizational-level application. However, I draw on Whetten (2006), who argued that
“organizational constructs borrowed from the individual level of analysis need not have the same
structures, only the same functions (i.e., comparable effects or consequences)” (p. 221) and on Foreman
and Whetten (2012), who claim that “organizations and individuals are both social actors and that all social
actors share a common set of identification requirements” (p. 9).
74

their self-categorization strategies along the vertical structure of categories.
10
For
instance, a firm might choose to use the specific lower-level label of “internet securities
suites software” or to use the inclusive higher-level label of “prepackaged software” or
the even more inclusive label of “software development.” The question then becomes
what influences firms’ choice of self-categorization labels among different levels of
inclusiveness. The cognitive psychological perspective, for instance, provides an
internally driven answer, arguing that organizations choose a category label among
different levels of inclusiveness that helps them better understand and define the
competitive landscape. The social psychological perspective also provides an internally
driven answer, positing that individuals choose a category label that is perceived to be
relatively accessible and to fit a given stimulus (e.g., Reynolds et al., 2003; Turner,
1999).
For entrepreneurial firms, one of the things that makes a firm attractive to pre-IPO
stage investors is its novelty and distinctiveness (Pontikes, 2012), in addition to its future
growth prospects. To differentiate themselves from other firms in the early stages of their
development, organizations are more likely to adopt a specific and unique category label
than an inclusive and generic one. As in the example above, a firm that uses the specific
category label of “internet securities suites software” instead of the generic but more
inclusive category label of “software development” is more likely to appeal to pre-IPO
stage investors such as venture capitalists.
Yet as the same firm approaches its IPO, the weight of what makes a firm

10
Adopting a more inclusive category does not necessarily involve spanning multiple categories since the
more inclusiveness category comes from the higher level of hierarchically available categories. Thus, while
a more inclusive category may have other related sub-categories nested within it, it is still a single category.
75

attractive to investors shifts to its future growth prospects (Higson & Briginshaw, 2000)
and its alignment with the prevailing logic of valuation in the stock market (Zuckerman,
1999, 2000, 2004). Following this logic, firms that adopt a more inclusive category at its
IPO than they did pre-IPO are likely to be more favorably evaluated by potential
investors, for at least two reasons. First, making a change from a less inclusive to a more
inclusive category can convey to potential investors that the firm is set to pursue a greater
total addressable market with greater future growth prospects. Growth, by definition,
implies a process of growing, and thus a change in category inclusiveness can indicate
that the firm is on a course of pursuing growth and thereby increasing its growth
momentum. In addition, prior studies have found that making a change by itself signals
organization’s intended future behavior as seen in the case of corporate name change
(Cooper, Khorana, Osobov, Patel, & Rau, 2005; Lee, 2001). Second, such a change can
imply that the issuing firm understands the prevailing logic of valuation in the stock
market in which investors and analysts use the Standard Industrial Classification (SIC)
codes to categorize firms, mostly at the four-digit level. Thus, adopting a more inclusive
category label rather than using a specific category label that does not correspond to a
four-digit SIC code implies that the firm is well prepared to be traded on the stock
market. Taken together, these factors suggest that firms will benefit from adopting a more
inclusive category as they approach the IPO, since making such a change implies the
firm’s interest in pursuing future growth and provides a better fit with the stock market’s
established categories and will therefore be more positively evaluated by potential
investors. Hence, I propose the following hypotheses:
H1a: Adopting a more inclusive category label at IPO than during pre-IPO will
76

be positively associated with underpricing.
H1b: Adopting a more inclusive category label at IPO than during pre-IPO will
be positively associated with the quantity and quality of institutional investors.
Horizontal Categorization and Change in Category Spanning
Previous studies based upon a sociological perspective on categorization have
shown that external audiences devalue subjects that span multiple categories (e.g., Hsu,
2006; Zuckerman, 1999), although several studies have demonstrated that young and old
organizations can benefit from taking on an ambiguous identity by spanning multiple
categories. Zuckerman et al. (2003), examining actors’ career paths over time, argue that
although having a simple identity is important to gaining legitimacy at the outset, once
actors achieve a certain level of recognition for their capabilities, diversifying their roles
further increases their value. In contrast, Durand, Rao, and Monin (2007) argue that
because audiences have lower expectations for younger firms, younger organizations
have more flexibility in making code-violating changes and may even increase their
external valuations by doing so. A recent study by Pontikes (2012) shows that different
audiences evaluate category spanning differently. In particular, she distinguishes between
audiences that are “market-makers,” who are interested in redefining the market
structure, and those that are “market-takers,” who use categories to find and assess
organizations from which they purchase or evaluate goods. Thus, she argues, market-
makers, such as venture capitalists, prefer category spanning that allows flexibility to
create new opportunities, while market-takers, such as consumers, devalue category
spanning, as it hinders their decision-making based on categorization.
77

One of the things that make a firm attractive to pre-IPO stage investors is its
flexibility. Since firms in their early stage face many unforeseeable challenges, their
ability to readily adapt to such challenges and create new opportunities is valued by pre-
IPO stage investors who are market-makers such as venture capitalists. In addition, since
firms in their early stages have to attract multiple stakeholders, including investors,
employees, customers, and suppliers, who are all critical to the survival and success of a
young firm, firms also have a tendency to deal with such multivocality by spanning
multiple categories (Padgett & Ansell, 1993) without being penalized too much (Durand
et al., 2007).
As the same firm approaches its IPO, however, potential investors can devalue the
flexibility arising from spanning multiple categories because, as mentioned earlier, such
ambiguous categorization does not align well with the prevailing logic of valuation in the
stock market (Zuckerman, 1999, 2000, 2004). IPO investors are market-takers who use
the classification system to find and assess stocks to purchase. In particular, because
stock market investors need to make quick decisions regarding which stocks to purchase
to generate returns, they prefer firms that are easier to comprehend, that is, firms that fit
into an established category system without spanning multiple categories. As such, firms
that adopt a smaller number of categories at IPO than at pre-IPO are likely to be more
favorably evaluated by potential investors. Making such a change can convey to potential
investors that the issuing firm understands the prevailing logic of valuation in the stock
market, particularly in terms of how firms are categorized based on industry by investors
and analysts. Thus, rather than spanning multiple categories and risking being devalued,
adopting fewer category labels may signal that the firm is well prepared to be traded on
78

the stock market. Hence, I propose the following hypotheses:
H2a: Adopting fewer categories at IPO than during pre-IPO will be positively
associated with underpricing.
H2b: Adopting fewer categories at IPO than during pre-IPO will be positively
associated with the quantity and quality of institutional investors.
These hypotheses suggest that, all other things remaining equal, firms that manage their
self-categorization by adopting a more inclusive category vertically and span a smaller
number of categories horizontally at IPO than during pre-IPO will receive greater
attention and more favorable evaluations from potential investors in the market.

Figure 3. Changes in self-categorization: Pre-IPO versus IPO.




 

Number of category
spanning
Degree of category inclusiveness
Inclusive
Specific
Low High
: Pre-IPO : IPO
79

For instance, Figure 3 presents an illustrative firm that spanned three categories at a less
inclusive level of categories prior to IPO but changed its self-categorization by spanning
fewer number of categories at a more inclusive level at IPO.
Audience Heterogeneity and the Effect of Strategic Categorization
Recent research on categorization has acknowledged the need to focus on
audience heterogeneity—for instance, how audiences with different goals and knowledge
hold different expectations when it comes to interpreting and evaluating categorization
(Durand & Paolella, 2013). Although both goals and knowledge have been identified as
important aspects of audience characteristics, this study pays particular attention to the
different levels of knowledge between intended audiences. Prior studies have shown that
category labels are perceived and processed differently depending on the audience’s
knowledge of categories and category structure (Durand & Paolella, 2013; Vergne &
Wry, 2014). Both institutional and retail investors are known to have a similar goal,
which is to maximize returns from investing in IPOs, although the two types of investors
have different levels of knowledge when it comes to valuing stocks.
Institutional investors are experienced investors who are allocated most of the
IPO shares in the pre-market (Aggarwal, Prabhala, & Puri, 2002; Ljungqvist & Wilhelm
2003). They are regarded as sophisticated (Cohen, Gompers, & Vuolteenaho, 2002;
Michaely & Shaw, 1994; Nagel, 2005) and tend to devote more time to researching and
analyzing stocks than do retail investors. Also, they are in a more advantageous position
with respect to IPOs than retail investors because they can participate in road shows
where they obtain firm and offer-specific information (Field & Lowry, 2009). Retail
investors, on the other hand, are in many case first-time buyers of stocks and have been
80

shown to be prone to psychological biases and to sentiment in their investment decisions
(Colaco, De Cesari, & Hedge, 2013; Jiang & Li, 2013; Ljungqvist & Wilhelm, 2005).
That is, their investment decisions are influenced by factors other than the fundamentals
of the firm or the stock. Such sentiment-driven investment by retail investors has been
found to influence stock prices, particularly in the IPO context. For example, Da,
Engelberg, and Gao (2011) find that retail investor attention has an impact on IPO
valuation, by using Google Search Volume Index (SVI) as a proxy for retail investor
attention, and Barber and Odean (2008) show that retail investors are buyers of attention-
grabbing stocks.
Combining the effect of knowledge on interpreting categorization and the
different levels of knowledge between institutional and retail investors, I argue that
changes in category inclusiveness and category spanning will be evaluated differently by
institutional and retail investors. Specifically, institutional investors may be influenced
less than retail investors by an issuing firm’s attempt to broaden its associated category
by increasing category inclusiveness at IPO because they conduct a systematic analysis of
an issuing firm’s market potential based on fundamentals. Previous research also suggests
that institutional investors are better able than retail investors to interpret readily available
public information (Field & Lowry, 2009). On the other hand, institutional investors may
be more influenced by an issuing firm’s attempt to become more focused by decreasing
their category spanning at IPO, as they are more accustomed to analyzing stocks based on
industry classifications. Retail investors, however, may be more influenced by an issuing
firm’s attempt to broaden its associated category because retail investors, who are
optimistic about future growth without much expertise in analyzing a firm’s
81

fundamentals, are likely to be motivated by the growth prospects implied by broader
categorization. On the other hand, retail investors are likely to be less influenced by an
issuing firm’s attempt to become more focused because they are interested in growth at
all costs, and spanning multiple categories could imply potential growth opportunities.
Hence, I propose the following hypotheses:
H3a: Adopting a more inclusive category label at IPO than during pre-IPO will
be more positively associated with underpricing than adopting fewer categories at
IPO than during pre-IPO.
H3b: Adopting fewer category labels at IPO than during pre-IPO will be more
positively associated with the quantity and quality of institutional investors than
adopting a more inclusive category label at IPO than during pre-IPO.
The Internet Bubble and the Effect of Strategic Categorization
Among the various explanations for the high levels of underpricing during the
Internet bubble period, DuCharme, Rajagopal, and Sefcik (2001) suggest that the
unprecedented levels of underpricing are attributable to media hype, issuing firms’
tendency to follow up underpriced IPO with follow on financing offers, and the branding
effect caused by underpricing. Ofek and Richardson (2002, 2003) find that more retail
investors invested in Internet stocks than in stocks in other sectors and that because the
first day of trading is usually when retail investors can buy Internet stocks, those
investors, who were usually inexperienced first-time investors, bid up the first trading
day’s closing price with enthusiasm, but sometimes at irrational levels.
Different industry stages can also influence how effective a firm’s self-
categorization strategies will be in influencing external audiences. Previous studies have
82

examined how the uncertainty and ambiguity in nascent markets, or “business
environments in an early stage of formation … characterized by undefined or fleeting
industry structure, unclear or missing product definitions, and lack of a dominant logic to
guide actions” (Santos & Eisenhardt, 2009, p. 2), allow organizations to pursue
ambiguous categorization without being penalized by external audiences. As such, early
in an industry’s emergence, when the category structure has not yet been set and the
category expectations of external audiences are unclear, the penalty for having an
ambiguous identity is lower than in more established markets (Glynn & Navis, 2013;
Granqvist et al., 2013).
In this study, I focus on how different self-categorization strategies were
perceived by investors during the Internet bubble and post bubble periods. Unlike the
post bubble period, the Internet bubble period possessed some characteristics similar to
those of nascent markets in that the Internet sector was still in its early stage of formation,
firms did not have clear business models for generating profit, and potential investors did
not have a rational valuation model. It is important, however, to also note that the
prevailing logic of valuation changed significantly between the Internet bubble period
and post bubble period. Unlike the post bubble period, as noted earlier, the Internet
bubble period was marked by the logic of “grow big fast” or “growth at all costs”
(Goldfarb et al., 2007; Jain et al., 2008). Therefore, I predict, increasing category
inclusiveness to convey growth momentum will have been more positively evaluated by
investors during the Internet bubble because it was in line with the prevailing logic of
valuation during that period. On the other hand, during the post bubble period, decreasing
category spanning to present a more focused organizational identity may have been more
83

positively evaluated by investors because such a change was in line with the logic of
traditional valuation models during that period. Hence, I propose the following two sets
of hypotheses:
H4a: Adopting a more inclusive category label at IPO than during pre-IPO will
be more positively associated with underpricing during the Internet bubble period
than during the post bubble period.
H4b: Adopting a more inclusive category label at IPO than during pre-IPO will
be more positively associated with the quantity and quality of institutional
investors during the Internet bubble period than during the post bubble period.
H5a: Adopting fewer categories at IPO than during pre-IPO will be more
positively associated with underpricing during the post bubble period than during
the Internet bubble period.
H5b: Adopting fewer categories at IPO than during pre-IPO will be more
positively associated with the quantity and quality of institutional investors during
the post bubble period than during the Internet bubble period.
Data and Methods
Sample
The firms analyzed for this study consisted of U.S.-based firms that completed
their IPOs in the Internet sector in the NASDAQ Stock Market between 1997 and 2012.
The observation period of 1997 to 2012 was selected because it provided an opportunity
to examine both the Internet bubble period and the subsequent post bubble period.
Sample firms were identified through three steps. First, I consulted Loughran and Ritter’s
(2004) list of Internet firms to identify firms in the Internet sector at the time of their IPO.
84

This list has been widely adopted by scholars studying Internet IPOs and has been
updated annually through 2013. According to this list, during 1997 and 2012, a total of
493 U.S.-based firms in the Internet sector went public, which comprised the initial
sample. Second, I downloaded and searched the Company Description section of the
initial prospectus (S-1) filed with the SEC by all firms that went public during the period
to identify whether those descriptions included “Internet,” “online,” “web,” “electronic
(e-) commerce,” or “e-business,” as the study aims to uncover the effect of a firm’s self-
categorization using category labels. Through this procedure, I augmented the initial
sample by adding 48 firms that used Internet-related keywords in describing themselves.
Finally, from the combined sample of 541 firms, I excluded spin-offs and firms with less
than one year of independent operating experience. After these exclusions, the final
sample comprised 483 firms, 91% of which overlapped with the initial list of Internet
IPOs provided by Ritter.
11

In addition to using archival data sources, I conducted extensive interviews with
experts who have been intimately involved in the IPO process to gain a deeper
understanding of whether and how firms actively engage in managing their positioning at
the time of the IPO by selecting certain labels. First, I searched LinkedIn, a professional
social networking site, with the keyword “IPO” and “initial public offering.” Then I
contacted over 80 individuals including lawyers, underwriters, venture capitalists, IPO
consultants, PR/IR specialists, auditors, and issuer firms, most of whom were in
California to allow me to follow up with a face-to-face meeting. Twelve experts agreed to
be interviewed: I conducted seven face-to-face meetings and five phone interviews with

11
http://bear.warrington.ufl.edu/ritter/ipodata.htm
85

at least one expert from each group, except for auditors, whom I was not able to
interview. Each interview lasted an average of 30 minutes, ranging from 15 minutes to
1.5 hours. These interviews provided valuable insights into how firms, with the assistance
of different constituents involved in the IPO process, decide how to position themselves
through self-categorization by carefully selecting which category labels to use.
Dependent Variables
The current study focuses on two important outcomes for firms undertaking an
IPO. The first dependent variable is underpricing, which measures the interest and
demand of retail investors as well as institutional investors. Underpricing was calculated
as the difference between the offer price and the closing price on the first day of trading,
expressed as a percentage of the offer price: ([(price
closing
– price
offer
)/price
offer
] x100). The
offer price was obtained from the final prospectus, and the first-day closing price was
collected from the CRSP Daily Stock File. Although underpricing is the most commonly
used measure for IPO performance (Certo et al., 2003; Daily et al., 2003), this study does
not consider whether underpricing is a potentially negative or positive outcome but
instead uses it as a proxy for overall investor interest and demand at IPO, as suggested by
the behavioral finance perspective (Ljungqvist, 2007; Ritter & Welch, 2002).
The second set of dependent variables is the quantity and quality of institutional
investors who invest in an issuing firm. This variable measures the interest and demand
from initial investors in the IPO. In particular, the quantity of institutional investors is
measured by the total number of institutional investors that invest in an issuing firm. Data
on institutional ownership was obtained from the Institutional Holdings (13f) Database
from Thomson Financial. Institutional investors are required to report their stock holdings
86

on a quarterly basis by filing form 13-F. I searched these quarterly data to identify the
first holdings report following each issuing firm’s IPO date and obtained the number of
institutional investors who invested in each firm. In addition, I also differentiated
institutional investors based on their quality. Following Bushee and colleagues (Bushee,
1998, 2001; Bushee & Goodman, 2007; Bushee & Noe, 2000), institutional investors
were divided into whether they are dedicated, transient, or quasi-indexed. In particular,
the quality of institutional investors is measured by the total number of dedicated
institutional investors that invest in an issuing firm. Data on these classifications were
obtained from Institutional Investor Classification Data provided by Bushee.
Independent Variables
The two main independent variables, change in category inclusiveness and change
in category spanning, were identified through content analysis of each issuing firm’s
press releases and prospectus. Table 1 provides examples of how two firms’ self-
categorization changed over time as the firms approached the IPO. Vastera filed for an
IPO on April 6, 2000. Almost a year prior to the filing, the firm had described its business
with labels such as “software,” “trade content,” and “services” in “international trade
logistics.” About 3 months prior to its IPO, Vastera’s business description became more
focused, using the labels “e-business,” “solutions,” and “global trade management.”

87

Table 1
Example of Change in Self-Categorization Over Time
Date Source Business Description
Self-Categorization
Labels
Example: Vastera
4/19/1999
Press
release
Vastera is the leading provider of software,
trade content, and services designed to help
companies manage and automate their
International Trade Logistics processes.
• software
• trade content
• service
• International Trade
Logistics
1/6/2000
Press
release
Vastera's mission is to drive revenue,
maximize profitability and establish
competitive advantage for our clients by
delivering e-business solutions for global
trade management.
• e-business
• solutions
• global trade
management
4/6/2000
IPO
prospectus
We are a leading provider of solutions for
global trade management.
• solutions
• global trade
management
Example: Shutterfly
7/18/2005
Press
release
Shutterfly, Inc. is the leading independent e-
commerce company specializing in digital
photo products and services for the consumer
and professional photography markets.
• e-commerce
• digital photo
products and
service
11/16/2005
Press
release
Shutterfly, Inc. is a premium photo service
specializing in the consumer and professional
photography markets.
• photo service
6/29/2006
IPO
prospectus
We are a leading Internet-based social
expression and personal publishing service
that enables consumers to share, print and
preserve their memories by leveraging our
technology-based platform and
manufacturing processes.
• Internet-based
• social expression
• personal
publishing
service

88

At the time of the IPO filing, the firm adopted the more inclusive labels, such as
“solutions” and “global trade management.” The second example, Shutterfly, filed for an
IPO on June 29, 2006. Almost a year prior to the IPO filing, a firm press release
positioned the company within the e-commerce industry with a focus on digital photo
products. About six months before the IPO filing, the firm trimmed its label to “photo
service” in a press release. At the time of the IPO filing, however, the firm again adopted
an “Internet-based” label and inclusive labels such as “social expression” and “personal
publishing services.”
The study examined press releases because they are “among the most common
and widespread communication vehicles used by public firms to disseminate voluntary
information and their content is highly discretionary” (Aerts & Cormier, 2009, p. 5).
They also provide an important source of business news that the media use to generate
news articles (Pontikes, 2012; Soltes, 2009). In these releases, firms typically provide a
description of who they are and what they do, usually in the first sentence and in the
“about” section at the very end of the press release (Pontikes, 2012). As such, press
releases reveal elements of a firm’s self-categorization that can be easily tracked over
time, thus providing a “historical record of the identity an organization claimed at a
specific point in time” (Pontikes, 2012, p. 11). In their IPO prospectus, which contains
detailed information about the offering that investors rely on to make investment
decisions, firms similarly provide a description of their business, usually in the Company
Description section. Thus, prospectuses also reveal a firm’s self-categorization at the time
of the IPO. To track changes in self-categorization in press releases, the study tracked
press releases for a 1-year period prior to the firm’s IPO filing. This period is in line with
89

that adopted by prior studies (e.g., Husick & Arrington, 1998), as firms begin to prepare
for their IPO about a year before their actual filing with the SEC (Pollock & Rindova,
2003).
To construct each independent variable for empirical analysis, all press releases
issued in the year prior to the IPO filing by all firms included in the study were
downloaded from LexisNexis, and excerpts that contained labels included in a firm’s
self-categorization were collected from the initial prospectus. Next, content analysis was
performed by two independent coders to identify and categorize self-categorization labels
in both the press releases and the prospectuses. The initial intercoder reliability was good
(Cohen’s kappa = 0.784). In cases of disagreement, the two coders discussed the coding
to reach agreement.
Finally, each variable was calculated. For change in category inclusiveness, each
of the self-categorization labels collected from press releases over time were first coded
based on the eight-digit SIC codes developed by Dun and Bradstreet (D&B), a
proprietary system that expands the U.S. SIC code system by appending up to four
additional digits to the standard four-digit SIC code, allowing more specific business
definitions. I conducted interviews with experts at D&B who manage the classification
process using the eight-digit SIC code and obtained a spreadsheet containing
corresponding matches among two-, three-, four-, six-, and eight-digit SIC codes. After
assigning labels to corresponding levels of SIC codes for each press release, I averaged
the number of digits, weighted by the number of press releases with the same self-
categorization, to obtain the weighted average of category inclusiveness in press releases.
For example, if a firm used the self-categorization labels “communications industry” and
90

“CLEC” (Competitive Local Exchange Carrier) in the same press release, which
correspond to a two-digit SIC code and an eight-digit SIC code, respectively, I averaged
these two numbers to arrive at five. If that firm issued four such press releases during the
year prior to the IPO while five other press releases contained a different type of self-
categorization, each of the average of category inclusiveness was weighed by their
appearances, that is, four and five, when calculating the weighted average of a firm’s
category inclusiveness pre-IPO.
Next, self-categorization labels from the Company Description section of the
firms’ IPO prospectuses were assigned SIC codes and the number of digits simply
averaged since there is only one set of prospectus information on self-categorization.
Finally, IPO category inclusiveness was subtracted from the pre-IPO weighted average
category inclusiveness—[(pre-IPO weighted average of category inclusiveness) – (IPO
category inclusiveness)]—to obtain the change in category inclusiveness measure. The
larger this number, the greater effort a firm was presumed to have made to become
inclusive during the IPO than during the pre-IPO period, in which inclusiveness
represents a greater total addressable market and growth prospects in the future.
For change in the number of category spanning, the self-categorization labels
mentioned in the press releases were first counted. For instance, if a firm used the self-
categorization labels “communications industry” and “Competitive Local Exchange
Carrier (CLEC)” in the same press release, I counted those as two different categories.
After repeating this process for all the press releases for the year prior to the filing date, I
averaged the number of categories spanned by a firm, weighted by the number of press
releases that contained the same self-categorization labels. Next, the self-categorization
91

labels in the Company Description section of its IPO prospectus were counted. Finally,
IPO category spanning was subtracted from the pre-IPO weighted average category
spanning—[(pre-IPO weighted average category spanning) – (IPO category spanning)].
The larger this number, the more effort a firm was assumed to have made to reduce
category spanning for its IPO than during the pre-IPO period.
Control Variables
This study controlled for many factors to precisely estimate the effect of the
variable of interest and to control for alternative explanations. First, the Internet bubble
period was controlled for because IPO-issuing firms are known to behave significantly
differently during this period. The Internet bubble period is generally identified as
beginning in 1997 and lasting until March 24, 2000 (Bhattacharya, Galpin, Ray, & Yu,
2009). Data on the IPO offering dates were collected from the SDC Platinum New Issue
Database as well as CRSP and coded 1 if the offering date fell within this period, and 0 if
otherwise. Second, the degree of category inclusiveness and the number of category
spanning presented in prospectus were also controlled. Given the study’s interest on the
effect of change on these measures, it was necessary to control for the absolute level of
category inclusiveness and category spanning at the time of the IPO. I also included a
square term of category inclusiveness at IPO as a control, as prior studies have suggested
that there is an optimal level of category inclusiveness (Rosch et al., 1976). These data
were collected from the IPO prospectuses.
Third, a number of firm characteristics that are known to influence the outcome of
IPO were controlled for. Firm size was controlled because larger firms are known to be
positively associated with investors’ attention, as their size reduces uncertainty. Firm size
92

was measured by the log value of total assets prior to IPO. The data on total assets were
collected from prospectuses and verified by referring to the SDC New Issues Database.
Firm performance was controlled for by using return on assets figures for the year before
the offer date (Arthurs, Hoskisson, Buesnitz, & Johnson, 2008). These data were also
collected from prospectuses and verified by referring to SDC New Issues Database. Firm
age was controlled because prior studies have shown that mature and established firms
are associated with greater investor attention, as they represent less risk for investors, or
less “liability of newness” (Arnold, Fishe, & North, 2010; Arthurs et al., 2008, Carter,
Dark, & Singh, 1998; Ritter, 1991). The data on firm age were calculated by first
identifying a firm’s founding date from the prospectus and cross-checking them with
Ritter’s list of founding dates. Then, a firm’s age was calculated as the log value of the
difference between the founding date and the filing date.
Founder’s presence in the issuing firm, as either an executive or a board member,
was also controlled. The impact of founder presence on IPO outcomes may be positive or
negative. Although some studies argue that founder-led IPOs are associated with more
positive investor evaluations because the founders are considered successful
entrepreneurs (Certo et al., 2001; Nelson, 2003), institutional investors have been shown
to discount founder-led IPOs. Data on founder presence was collected from IPO
prospectuses and coded 1 if a founder was present, 0 otherwise. CEO ownership was
controlled because the amount of equity owned by the CEO has been shown to indicate
the strength of the CEO’s belief in the firm’s future prospects, and thus is associated with
positive investor attention (Certo et al., 2001). The industry sub-category of the issuing
firm was controlled because different sub-categories within the Internet sector have
93

different characteristics. Following Pollock and Gulati (2007), I first created dummy
variables for each of the nine Internet-related sub-industry classifications
12
and collapsed
those dummy variables into three categories: (1) B2B (Business-to-Business) firms, (2)
B2C (Business-to-Comsumer) firms, and (3) Internet infrastructure firms.
Fourth, the characteristics of IPO endorsers were controlled. The number of
underwriters involved in the IPO and underwriters’ reputation were controlled because
these factors have been shown to influence IPO outcomes. Prior studies have shown that
IPOs led by a greater number of underwriters and by underwriters with high reputations
result in greater investor attention and positive evaluations. Some scholars have attributed
this correlation to these underwriters’ reducing the uncertainty associated with the IPO by
affecting the beliefs of investors about the firms’ future growth prospects (Brau &
Fawcett, 2006; Chemmanur & Krishnan 2011; Higgins & Gulati, 2003; Pollock, 2004),
although more recent evidence suggests that IPOs led by such underwriters result in
higher underpricing because their endorsement could signal positive growth prospects,
particularly to retail investors (Chemmanur & Krishnan, 2011). Data on the number of
underwriters were collected from the SDC New Issues Database and data on underwriter
reputation were obtained from Loughran and Ritter’s (2004) IPO underwriter reputation
ranking, a corrected and extended version of the previously used Carter et al. (1998)
rankings.
Venture capital (VC) funding was also controlled in this study for similar reasons.
Previous studies show that the effect of VCs on IPO outcomes may be positive if VCs

12
1. e-Infrastructure; 2. e-Services/solutions; 3. e-Advertising/marketing/media; 4. e-Retail; 5. e-Finance;
6. e-New media; 7. e-Internet service providers; 8. Infomediaries; 9. Business-to-business
94

help in the development of the IPO through their knowledge and connections, but may
also be negative if VCs, as agents of their own principals, pursue interests of their own
that are not as beneficial to the issuing firm (Chahine & Goergen, 2011). Also, two
variables related to institutional investors were controlled when estimating underpricing:
the total number of institutional investors and the percentage of institutional ownership
because these variables are known to positively influence underpricing by their
endorsement (Sherman & Titman, 2002). Data on institutional investors were obtained
from the Institutional Holdings (13f) Database from Thomson Financial.
Fifth, a number of IPO related factors were controlled when estimating
underpricing. Pricing range was controlled by means of two dummy variables, priced
above range and priced below range. An offer price revised above the initial pricing
range is assumed to partially reflect information about positive institutional investor
demand for a firm’s stock and is a key component of short-term IPO performance
measures (Certo et al., 2003), and the opposite holds for those priced below range. Each
IPO was classified based on whether the final offer price was above, within, or below the
filing range (Aggarwal et al., 2002); the dummy variable of priced above range was
coded 1 if the offer price was amended to above range compared to the amended price
range, and 0 otherwise. The dummy variable of priced below range was coded 1 if the
offer price was below range compared to the amended price range, 0 otherwise. These
data were obtained from the prospectuses and SDC Platinum New Issues database and
CRSP. IPO offer size was controlled because prior studies have shown that offer size is
negatively associated with underpricing because greater size signals quality and stability
and thus represents lower uncertainty (e.g., Beatty 1989, Carter & Manaster, 1990). Offer
95

size was calculated as the log of offer price multiplied by shares outstanding based on
data obtained from the SDC Platinum New Issues database.
Specificity in use of proceeds was controlled because specificity, which is the
fraction of total use of proceeds that are described as having a specific purpose, is known
to be negatively associated with underpricing, as it reduces uncertainty. Specificity in use
of proceeds was calculated as the dollar amount for a specific use as presented in the use
of proceeds section of the prospectus (Leone, Rock, & Willenborg, 2007). IPO hotness
was controlled because hot IPO markets have been described as having an unusually high
volume of offerings and severe underpricing (Derrien, 2005; Helwege & Liang, 2004).
Following .Ibbotson, Sindelar, and Ritter (1994), IPO hotness was calculated as the
percent priced above original mid-point file range
Finally, other media effects found in prior IPO research were controlled. Pre-IPO
media exposure was controlled because previous studies have found that the extent of
media exposure a firm receives prior to its IPO is associated with underpricing
(Bhattacharya et al., 2009; Jang, 2007). Whereas earlier studies found a negative
association between pre-IPO media exposure and underpricing, recent studies have also
shown that pre-IPO media exposure is positively associated with underpricing (Cook,
Kieschnick, & Van Ness 2006; DuCharme et al., 2001). For Internet firms in particular,
pre-IPO media exposure has been found to be positively associated with underpricing
(Schrand & Verrecchia, 2005). Data on pre-IPO media exposure were collected by
counting the total number of news articles found in the LexisNexis Major Newspapers
database that mentioned a firm’s name during the one-year period prior to the firm’s IPO
filing. Number of press releases was controlled for both one year before filing and
96

between filing and pricing. The number of press releases during the year prior to filing
was controlled for similar reasons as pre-IPO media exposure. The number of press
releases between filing and pricing was also controlled because media exposure during
the registration period can influence underpricing by increasing the perceived legitimacy
of the issuing firm. The data on press releases were collected from press releases on the
Business Wire and PR Newswire within the LexisNexis database.
Statistical Methods
The study took measures to avoid the potential endogeneity problem caused by
the fact that certain firm-specific factors may influence both the firm’s likelihood of
issuing press releases and stock market evaluations of the firm. Given that firms differ in
their likelihood to issue press releases, not incorporating such differences when
predicting how characteristics of press releases influence stock market evaluations can
result in biased estimates. Therefore, the analysis first corrects for potential selection bias
in the IPOs for which press releases are available by estimating a Heckman two-stage
model (Heckman, 1979), following prior studies that have used this method in the IPO
context (Arthur et al., 2008; Aggarwal et al., 2002; Pollock & Rindova, 2003).
The first stage was designed to explain why some firms had no press releases
during the one-year period before the IPO, which was necessary to understand why press
release data were missing for some firms given that self-categorization information in
press releases is a major variable in the current study. Thus, a probit regression model
was estimated with the dependent variable, press releases one year prior to the IPO,
which was coded as 1 if the firm had at least one press release during the period and 0
otherwise. For the first stage, the independent variables that were expected to increase the
97

likelihood that a firm would have at least one press release are firm size, industry
category (B2C), venture capital funding, firm age, Internet bubble period, founder
presence, location in California, and number of press releases during two years, rather
than one year prior to the IPO. The estimates of parameters, or the inverse Mill’s ratio
(Lambda) from the probit model, was then included in the second stage as an additional
regressor to analyze the unbiased coefficient estimates for the independent variables on
the number of institutional investors and degree of underpricing, respectively. The first
stage was estimated using the full sample of 482 firms, while the second stage included
only the 454 firms with at least one press release during the year before the IPO.
To estimate the effect of changes in self-categorization strategies on overall
investors’ attention measured by underpricing, the OLS regression model was used with
Huber-White robust standard errors to control for potential heteroskedasticity (White,
1980). Next, to test the effects of changes in self-categorization strategies on institutional
investors’ attention, a negative binomial regression analysis and poisson analysis were
used. Both the total number of institutional investors and number of dedicated investors
were count measures within a limited range of positive integer values, making original
least square (OLS) regression models inappropriate. Because the poisson model was not
suitable for predicting the total number of institution investors because the data were
over-dispersed (i.e., the conditional variance exceeded the conditional mean [Long,
1997]), a negative binomial regression analysis was used to estimate the effect of changes
in self-categorization strategies on the total number of institutional investors. To estimate
the effect of self-categorization strategies on the number of dedicated institutional
98

investors, the poisson model was used to ensure that zero values of the dependent
variable were incorporated rather than implicitly truncated, as they are in OLS regression.
Results
Table 2 contains a summary of statistics on the primary data sample. In the
sample, 330 IPOs, or 68% of the sample, were from the Internet bubble period. The mean
and median underpricing in the sample equals 76.6% and 43.8%, respectively, while the
mean and median underpricing during the Internet bubble period equals 95.8% and
60.9%, respectively. These results are similar to the median of 57% reported by
Ljungqvist and Wilhelm (2003) in their study of Internet IPOs during 1999 and 2000.
The findings regarding the two main explanatory variables in this study, the
degree of category inclusiveness and number of category spanning, are presented in
Figures 4 and 5. Figures 6 and 7 illustrate the degree of category inclusiveness and
number of categories spanned, respectively, for the pre-IPO period and at the time of the
IPO. Figure 4 shows that the overall trend in the degree of category inclusiveness shifted
between these two periods: pre-IPO, the category labels used in press releases were
relatively less inclusive (M = 7.04, SD = 1.10), but became more inclusive at the time of
the IPO (M = 6.89, SD = 1.20). Results from a paired t-test indicated that the mean of
pre-IPO category inclusiveness is statistically different from the mean of category
inclusiveness at IPO (t = 3.16, p = 0.001). Also, Figure 5 demonstrates that the overall
trend in the number of category spanning also shifted, showing slightly more number of
categories spanned in press releases pre-IPO (M = 1.70, SD = 0.77) than at the time of the
IPO (M = 1.69, SD = 0.80). ). Results from a paired t-test, however, indicated that the
mean of number of categories spanned during the pre-IPO period is not statistically
99

different from the mean number of categories spanned at IPO.
Figures 6 and 7 present the degree of category inclusiveness and number of
categories spanned, respectively, during the Internet bubble and post bubble periods.
Figure 6 shows that the category labels adopted during the Internet bubble period is
slightly less inclusive (M = 6.94, SD = 1.15) compared to that during the post bubble
period (M = 6.77, SD = 1.36). Results from a paired t-test indicated that the mean of
category inclusiveness during the Internet bubble period is not statistically different from
the mean of category inclusiveness during the post bubble period. In addition, Figure 7
demonstrates that the number of categories spanned is higher during the Internet bubble
period (M = 1.76, SD = 0.88) compared to that during the post bubble period (M = 1.57,
SD = 0.65). Results from a paired t-test indicated that the mean number of categories
spanned during the Internet bubble period is not statistically different from the mean
number of categories spanned during the post bubble period (t = -2.44, p = 0.02).

98
Table 2
Descriptive Statistics and Pearson Correlations
Variables Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12

1. Change in inclusiveness
a
0.15 1.04
2. Change in spanning
a
0.01 0.77 -0.03
3. Quantity of institutional investors 35.20 27.46 -0.11* 0.12*
4. Quality of institutional investors 1.33 1.17 -0.10* 0.07 0.53**
5. Underpricing 0.77 0.97 0.04 0.09† 0.35** 0.20**
6. Prospectus spanning 1.70 0.82 -0.01 -0.53** -0.11† 0.03 -0.10*
7. Prospectus inclusiveness 6.89 1.22 -0.53** 0.01 0.03 0.05 0.12** -0.11*
8. Internet bubble period 0.68 0.47 -0.03 -0.04 -0.06 0.05 0.29** 0.11* 0.06
9. Firm size
b
17.18 1.14 -0.03 0.10* 0.40** 0.13** -0.04 -0.04 -0.08† -0.40**
10. Firm performance -0.38 0.70 0.02 0.05 0.06 0.07 -0.12** -0.01 -0.09* -0.18** 0.28**
11. Firm age
b
7.37 0.66 -0.02 -0.02 -0.05 -0.03 -0.16** 0.00 -0.03 -0.26** 0.05 0.12**
12. Founder presence 0.70 0.46 0.04 -0.02 0.05 0.00 0.13** -0.01 -0.06 0.08† -0.02 -0.05 -0.11*
13. % CEO ownership 0.12 0.13 0.01 0.05 -0.06 0.03 -0.08† -0.03 -0.01 0.11† -0.20** 0.05 -0.01 0.06
14. Industry category 1.71 0.80 -0.09† 0.08† 0.06 0.07 0.01 -0.03 0.06 0.01 0.18** 0.02 -0.15** 0.05
15. # Press releases: 1 year before filing 17.58 14.57 0.07 0.04 0.08† -0.02 0.17** -0.13** 0.07 -0.06 0.13** -0.03 -0.05 0.06
16. # Press releases: Filing and pricing 6.18 6.34 0.08 -0.01 0.06 0.01 0.03 -0.03 -0.01 -0.13** 0.14** -0.03 -0.06 0.08†
17. Pre-IPO media exposure 7.14 91.72 -0.10* 0.00 0.65** 0.15** -0.04 -0.04 -0.04 -0.08† 0.25** 0.02 0.04 0.03
18. % Institutional ownership 0.22 0.41 -0.05 0.06 0.05 0.07 -0.06 0.03 0.01 -0.06 0.06 0.05 0.07 -0.08
19. # Underwriters 3.75 2.42 -0.06 0.07 0.55** 0.20** -0.04 -0.09† -0.07 -0.18** 0.42** 0.08† 0.05 0.03
20. Underwriter reputation 8.38 3.14 -0.01 0.07 0.10* 0.00 0.03 0.00 -0.08† -0.13** 0.33** 0.07 0.07 -0.05
21. Venture capital funding 0.82 0.38 -0.04 -0.04 0.17** 0.07 0.11 0.00 0.07 -0.12** 0.18** 0.02 0.00 0.07
22. Pricing range 1.48 0.60 0.02 0.09† 0.13** 0.08 0.19** -0.05 0.01 -0.02 0.01 0.02 0.04 0.04
23. IPO offer size
b
19.71 0.90 -0.08 0.06 0.68** 0.31** 0.32** -0.11* 0.03 -0.13* 0.62** 0.03 -0.14** 0.13*
24. Use of proceeds specificity 0.30 0.45 -0.06 0.02 -0.23** -0.14** -0.19** 0.02 0.02 0.02 -0.14** -0.03 -0.03 0.02
25. IPO hotness 0.59 0.23 -0.04 -0.02 0.13** 0.13** 0.33** 0.06 0.08† 0.44** -0.13** -0.07 -0.09* 0.01

99
Variables Mean S.D. 13 14 15 16 17 18 19 20 21 22 23 24

14. Industry category 1.71 0.80 -0.04
15. # Press releases: 1 year before filing 17.58 14.57 -0.12** -0.12**
16. # Press releases: Filing and pricing 6.18 6.34 -0.08† -0.13** 0.50**
17. Pre-IPO media exposure 7.14 91.72 0.02 0.02 0.00 0.00
18. % Institutional ownership 0.22 0.41 0.03 -0.05 0.04 0.01 -0.01
19. # Underwriters 3.75 2.42 -0.05 0.01 0.07 0.05 0.58** 0.00
20. Underwriter reputation 8.38 3.14 -0.09* 0.01 0.02 0.10* 0.01 0.01 0.03
21. Venture capital funding 0.82 0.38 -0.25** -0.02 0.21** 0.14** 0.02 0.10* 0.03 0.01
22. Pricing range 1.48 0.60 0.00 -0.08† 0.03 -0.04 -0.04 0.02 0.01 0.04 -0.01
23. IPO offer size
b
19.71 0.90 -0.13** 0.17** 0.20** 0.15** 0.31** -0.04 0.47** 0.15** 0.25** 0.13**
24. Use of proceeds specificity 0.30 0.45 0.10* 0.10* -0.11* -0.03 -0.04 -0.06 -0.09* -0.02 -0.15** -0.06 -0.20**
25. IPO hotness 0.59 0.23 -0.01 0.09† -0.02 -0.03 0.01 -0.05 -0.06 -0.01 0.05 0.06 0.13** -0.04

† p ≤ 0.1, * p ≤ 0.05, ** p ≤ 0.01, *** p ≤ 0.001
a.
n = 454; Otherwise, n=482
b.
Log-transformed

100

Figure 4. Degree of category inclusiveness: Pre-IPO versus IPO.

Figure 5. Number of categories spanned: Pre-IPO versus IPO.
0
50
100 150 200
Frequency
2 4 6 8
Pre-IPO (Press releases) IPO (Prospectus)
Degree of Category Inclusiveness
0
50
100 150 200 250
Frequency
1 2 3 4 5
Pre-IPO (Press releases) IPO (Prospectus)
Number of Categories Spanned
101

Figure 6. Degree of category inclusiveness at IPO: Internet bubble versus post bubble.

Figure 7. Number of categories spanning at IPO: Internet bubble versus post bubble
0
50
100 150
Frequency
2 4 6 8
Degree of Category Inclusiveness in Prospectus
Internet Bubble Period Post Bubble Period
0
50
100 150
Frequency
1 2 3 4 5
Number of Categories Spanned in Prospectus
Internet Bubble Period Post Bubble Period
102

Underpricing
Table 3 reports the results of OLS regression models of the relationship between
changes in self-categorization strategies and underpricing. Models 1 and 2 are baseline
models containing control variables only. The degree of category inclusiveness and
number of categories spanned are entered separately in Model 2 to demonstrate that the
effect of changes in self-categorization strategies is in addition to the absolute effect of
categories at the time of the IPO. Results from the baseline models show that Internet
bubble period, founder presence, number of press releases one year before IPO filing,
pricing above range, number of institutional investors, and IPO hotness are positively
associated with underpricing. On the other hand, firm performance, CEO ownership,
being in a B2C industry, pre-IPO media exposure, number of underwriters, institutional
investor ownership, and specificity of use of proceeds are negatively associated with
underpricing.
Hypothesis 1a predicted that changing category inclusiveness to adopt a more
inclusive category label at the time of the IPO would be positively associated with
underpricing. I find support for this hypothesis in Model (β = 0.10, p ≤ 0.05, R
2
= 0.47,
R
2
Adjusted
= 0.438). Hypothesis 2a predicted that changing category spanning to span
fewer categories at the time of the IPO would be positively associated with underpricing,
but Models 4 does not support this hypothesis. Hypothesis 3a predicted that adopting a
more inclusive category label at IPO will be more positively associated with underpricing
than adopting fewer categories at IPO. In Model 5, only the coefficient for adopting a
more inclusive category label is significant IPO (β = 0.11, p ≤ 0.05).
103

Table 3
Results of OLS Regression Analyses Predicting Underpricing
a

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Change in
inclusiveness
0.10* 0.11* 0.10† 0.10* 0.08†
(0.05) (0.05) (0.06) (0.05) (0.06)
Change in
spanning
0.03 0.04 0.04 -0.10† -0.11†
(0.06) (0.06) (0.06) (0.07) (0.07)
Change in
inclusiveness*
0.01 0.03
Internet bubble
period
(0.08) (0.08)

Change in
spanning*
0.21* 0.22**
Internet bubble
period
(0.09) (0.09)

Prospectus
spanning
-0.06 -0.06 -0.05 -0.03 -0.03 -0.02 -0.02
(0.04) (0.04) (0.05) (0.05) (0.05) (0.05) (0.05)
Prospectus
inclusiveness
-0.18 -0.13 -0.19 -0.14 -0.14 -0.19 -0.19
(0.25) (0.25) (0.25) (0.25) (0.25) (0.25) (0.25)
Prospectus
inclusiveness
2

0.02 0.02 0.02 0.02 0.02 0.02 0.02
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)
Internet bubble
period
0.37*** 0.38*** 0.39*** 0.38*** 0.39*** 0.39*** 0.38*** 0.38***
(0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08)
Firm size -0.07 -0.06 -0.07 -0.07 -0.07 -0.07 -0.07 -0.07
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
Firm performance -0.08† -0.08† -0.08 -0.08† -0.08 -0.08 -0.08† -0.08†
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
Firm age -0.07 -0.07 -0.06 -0.07 -0.06 -0.06 -0.06 -0.06
(0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06)
Founder presence 0.14† 0.14† 0.15† 0.14† 0.15† 0.15† 0.15† 0.15†
(0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08)
% CEO ownership -0.62** -0.62** -0.63** -0.63** -0.64** -0.65** -0.64** -0.64**
(0.23) (0.23) (0.23) (0.23) (0.23) (0.23) (0.23) (0.23)
Industry category: -0.18* -0.17† -0.14 -0.17† -0.14 -0.15 -0.15 -0.15
B2C (0.09) (0.09) (0.09) (0.09) (0.09) (0.09) (0.09) (0.09)
Industry category: -0.06 -0.08 -0.07 -0.08 -0.08 -0.08 -0.07 -0.07
Internet
Infrastructure
(0.10) (0.10) (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)

# Press releases: 0.01* 0.01* 0.01* 0.01* 0.01* 0.01* 0.01* 0.01*
1 year before
filing
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
(table
(0.00)
continues)

104

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
# Press releases: -0.01† -0.01 -0.01† -0.01 -0.01† -0.01 -0.01† -0.01†
Filing and
pricing
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)

Pre-IPO media
exposure
-0.00*** -0.00*** -0.00*** -0.00*** -0.00*** -0.00*** -0.00*** -0.00***
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
# Underwriters -0.06** -0.06** -0.06** -0.06** -0.06*** -0.06*** -0.06*** -0.06***
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)
Underwriter
reputation
0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
Venture capital
funding
0.04 0.05 0.06 0.05 0.07 0.07 0.07 0.08
(0.09) (0.09) (0.09) (0.09) (0.09) (0.09) (0.09) (0.09)
Priced above range 0.32*** 0.31*** 0.30*** 0.31*** 0.30*** 0.30*** 0.31*** 0.31***
(0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08)
Priced below range -0.09 -0.09 -0.09 -0.10 -0.10 -0.10 -0.12 -0.12
(0.09) (0.09) (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)
% Institutional
ownership
-0.13† -0.12† -0.11 -0.13† -0.12† -0.12† -0.11 -0.11
(0.08) (0.07) (0.07) (0.07) (0.07) (0.07) (0.07) (0.07)
# Institutional
investors
0.02*** 0.02*** 0.02*** 0.02*** 0.02*** 0.02*** 0.02*** 0.02***
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
Use of proceeds
specificity
-0.12† -0.12† -0.11† -0.12† -0.11† -0.11† -0.11 -0.11
(0.07) (0.07) (0.07) (0.07) (0.07) (0.07) (0.07) (0.07)
IPO offer size 0.14 0.13 0.13 0.14 0.14 0.14 0.14 0.14
(0.10) (0.10) (0.10) (0.09) (0.09) (0.09) (0.09) (0.09)
IPO hotness 0.48** 0.49** 0.48** 0.49** 0.48** 0.48** 0.48** 0.47**
(0.15) (0.16) (0.15) (0.16) (0.15) (0.15) (0.15) (0.15)
Lambda 0.54 0.56 0.61 0.56 0.62 0.61 0.57 0.56
(0.47) (0.47) (0.47) (0.47) (0.47) (0.48) (0.46) (0.46)
Constant -1.66 -1.05 -1.51 -1.12 -1.62 -1.60 -1.51 -1.47
(1.48) (1.51) (1.51) (1.49) (1.49) (1.48) (1.50) (1.49)

R-squared 0.46 0.46 0.47 0.46 0.47 0.47 0.48 0.48
Adjusted R-
squared
0.429 0.431 0.438 0.430 0.438 0.436 0.442 0.441
df1 22 25 26 26 27 28 28 29
df2 430 427 426 426 425 424 424 423
Observations 453 453 453 453 453 453 453 453
Note. † p ≤ 0.1, * p ≤ 0.05, ** p ≤ 0.01, *** p ≤ 0.001
a.
Robust standard errors in parentheses; significance tests are one-tailed for directional
hypotheses and two-tailed for control variables

105

I also compare the standardized coefficients of both variables holding other variables
constant using the -beta- option in Stata. Using Model 5 again, the standardized
coefficient for adopting a more inclusive category is larger than the standardized
coefficient for adopting fewer categories at IPO (β = 0.11 and β = 0.03, respectively),
thus supporting Hypothesis 3a. That is, a one standard deviation increase in adopting a
more inclusive category (SD = 1.04) would yield 0.11 standard deviation increase in the
predicted underpricing while a one standard deviation increase in adopting fewer
categories would only yield 0.03 standard deviation increase in the predicted
underpricing.
13

Interaction variables are presented in Models 6 through 8. Hypothesis 4a
predicted that changes in category inclusiveness would be more positively associated
with underpricing during the Internet bubble period, but I find no support for this
hypothesis in Model 6. Instead, the results indicate that the Internet bubble period does
not influence the effectiveness of changes in category inclusiveness on underpricing: a
one standard deviation increase in inclusiveness (SD = 1.03) was found to result in a
0.089 standard deviation increase in predicted underpricing over all periods while holding
all other variables in the model constant. Hypothesis 5a predicted that change in category
spanning would be more positively associated with underpricing during the post bubble
period, but Model 7 shows a positive effect of adopting fewer categories on underpricing
(β = 0.21, p ≤ 0.05, R
2
= 0.48, R
2
Adjusted
= 0.442), which is in the opposite direction of the

13
I also compared the effect size of the two variables using the –esize- command in Stata. The results
indicate that while Model 5 explains 47.04% of the predicted underpricing, change in category
inclusiveness accounts for 1.5% of the predicted underpricing. Change in category spanning, however,
explains 0.1% of the predicted underpricing.
106

prediction.
Further interpreting the interaction effect, if an issuing firm were to increase the
change in spanning (that is, to decrease the number of categories spanned) by one
standard deviation during the Internet bubble period (SD = 0.77), the firm’s underpricing
would be expected to increase by 0.14 standard deviation, while holding all other
variables in the model constant. On the other hand, if an issuing firm were to increase that
change in spanning (that is, decrease the number of categories spanned) by one standard
deviation during the post bubble period (SD = 0.77), the firm’s underpricing would be
expected to decrease by 0.08 standard deviation, while holding all other variables in the
model constant.

Figure 8. Interaction effects of change in category spanning and Internet bubble period
on underpricing.
107

Figure 8 illustrates the interaction effect of Internet bubble period and change in
category spanning on underpricing. Following recent trends in interpreting interaction
effects, I used –margins- and –marginsplot- command in Stata. Results from these
commands suggest that the slope of the marginal effects of the main variable needs to be
examined at different levels of the moderating variable. The dashed black line represents
the effect of change in spanning in the Internet bubble period, holding all other variables
at their mean, and the solid gray line represents the effect of change in spanning after the
Internet bubble period, holding all other variables at their mean. The slope is positive
during the Internet bubble period but negative during the post bubble period, contrary to
the prediction made in Hypothesis 5a. This indicates that as change in spanning increased
during the Internet bubble period (that is, as the number of categories spanned decreased
at the time of the IPO), the higher the underpricing. On the other hand, as changes in
spanning increased during the post bubble period, the lower the underpricing. These
results suggest that investors are uneasy about firms becoming more focused during the
post bubble period.
In sum, these results provide overall support for the argument that changes in
category inclusiveness and changes in category spanning do affect, statistically and
substantively, investors’ attention, as measured by the quantity and quality of institutional
investors and the degree of underpricing. Comparing different types of investors, the
results demonstrate that institutional investors’ attention is more positively influenced by
changes in category spanning than by changes in category inclusiveness, while investors’
attention in general is more positively influenced by the change in category inclusiveness
than by changes in category spanning. Comparison of the relative effectiveness of
108

changes in category spanning and category inclusiveness during the Internet bubble and
post bubble periods shows that becoming more focused appeals to institutional investors
during the post bubble period, whereas becoming more focused discourages investors in
general during the post bubble period.
Quantity of Institutional Investors
Table 4 reports the results of negative binomial regression models of the
relationship between changes in self-categorization strategies and the quantity of
institutional investors operationalized by the number of institutional investors. Models 1
and 2 are baseline models containing control variables only. The degree of category
inclusiveness and number of categories spanned are entered separately in Model 2 to
demonstrate that the effect of changes in self-categorization strategies is in addition to the
absolute effect of categories at the time of the IPO. Results from the baseline models
show that Internet bubble period, firm size, number of underwriters, underwriter
reputation, and venture capital funding are positively associated with the total number of
institutional investors, whereas firm age and being in a B2C industry are negatively
associated with the total number of institutional investors.
Although Hypothesis 1b predicted that adopting a more inclusive category label at
the time of the IPO would be positively associated with the number of institutional
investors, Model 3 does not support this hypothesis. Models 4, however, does support
Hypothesis 2b, which predicted that changing category spanning to include fewer
categories at the time of the IPO would be positively associated with the quantity of
institutional investors (β = 0.07, p ≤ 0.05).
109

Table 4
Results of Negative Binomial Analyses Predicting the Quantity of Institutional
Investors
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Change in
inclusiveness
0.01 0.01 0.05 0.01 0.06
(0.03) (0.03) (0.05) (0.03) (0.05)
Change in
spanning
0.07* 0.07* 0.07* 0.13* 0.13*
(0.04) (0.04) (0.04) (0.06) (0.06)

Change in
inclusiveness*
-0.05 -0.06
Internet bubble
period
(0.05) (0.05)

Change in
spanning*
-0.08 -0.09†
Internet bubble
period
(0.07) (0.07)

Prospectus
spanning
-0.01 -0.01 0.03 0.03 0.03 0.02 0.02
(0.03) (0.03) (0.04) (0.04) (0.04) (0.04) (0.04)
Prospectus
inclusiveness
-0.25 -0.25 -0.25 -0.25 -0.25 -0.23 -0.23
(0.19) (0.19) (0.19) (0.19) (0.19) (0.19) (0.19)
Prospectus
inclusiveness
2

0.02 0.02 0.02 0.02 0.02 0.02 0.02
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Internet bubble
period
0.13* 0.13* 0.13* 0.13* 0.13* 0.14* 0.13* 0.15*
(0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06)
Firm size 0.09** 0.09** 0.09** 0.08* 0.08* 0.08* 0.08* 0.08*
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
Firm performance -0.03 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02
(0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04)
Firm age -0.07† -0.06 -0.06 -0.06 -0.06 -0.06 -0.06 -0.06
(0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04)
Founder presence -0.06 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05
(0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.05)
% CEO
ownership
0.11 0.09 0.09 0.07 0.07 0.08 0.08 0.09
(0.21) (0.20) (0.20) (0.20) (0.20) (0.20) (0.20) (0.20)
Industry category: -0.16** -0.15* -0.15* -0.15* -0.15* -0.15* -0.15* -0.14*
B2C (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06)

Industry category: 0.04 0.03 0.03 0.02 0.02 0.02 0.02 0.02
Internet
Infrastructure
(0.07) (0.07) (0.07) (0.07) (0.07) (0.07) (0.07)
(table
(0.07)
continues)

110

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
# Press releases: 0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00
1 year before
filing
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

(0.00)

# Press releases: -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00
Filing and
pricing
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

Pre-IPO media
exposure
0.00 0.00† 0.00† 0.00† 0.00† 0.00† 0.00† 0.00†
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
# Underwriters 0.04** 0.04** 0.04** 0.04** 0.04** 0.04** 0.04** 0.04**
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Underwriter
reputation
0.23*** 0.23*** 0.23*** 0.23*** 0.23*** 0.23*** 0.23*** 0.23***
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
Venture capital
funding
0.21** 0.20* 0.21* 0.21** 0.21** 0.21** 0.21** 0.20*
(0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08)
Lambda -0.00 -0.02 -0.02 -0.00 0.00 0.02 0.01 0.03
(0.28) (0.28) (0.28) (0.28) (0.28) (0.28) (0.28) (0.28)
Constant 0.18 0.82 0.80 0.87 0.83 0.80 0.78 0.74
(0.66) (0.87) (0.87) (0.86) (0.87) (0.87) (0.87) (0.86)

Log likelihood -1902.16 -1899.67 -1899.64 -1898.05 -1897.94 -1897.40 -1897.24 -1896.57
Wald chi-square 213.28*** 218.27*** 218.32*** 221.50*** 221.71*** 222.80*** 223.13*** 224.46***
Log likelihood
ratio test
b

- - 0.05 3.23† 3.44 4.52 4.86 6.19
Observations 454 454 454 454 454 454 454 454
Note. † p ≤ 0.1, * p ≤ 0.05, ** p ≤ 0.01, *** p ≤ 0.001
a.
Robust standard errors in parentheses; significance tests are one-tailed for directional
hypotheses and two-tailed for control variables
b
Relative to Model 2

A log likelihood ratio test revealed that Model 4 predicts the number of institutional
investors more effectively than does Model 2 (D = 3.23, p ≤ 0.1). Hypothesis 3b
predicted that adopting fewer category labels will be more positively associated with the
quantity of institutional investors’ attention than adopting a more inclusive category
label. In Model 5, only the coefficient for adopting fewer category labels is significant (β
111

= 0.07, p ≤ 0.05), so Hypothesis 3b is supported for the sample of this study.
14

To further interpret the effect of change in category spanning on the number of
institutional investors, I calculated an incidence rate ratio (Stata command -irr-). If an
issuing firm were to increase the number of categories spanned (that is, decrease the
number of categories spanned by one category), the firm’s rate for adding institutional
investors would be expected to increase by a factor of 1.134, while holding all other
variables in the model constant. That is, the number of institutional investors endorsing
an issuing firm’s IPO would increase by 13.4 percentage points with every one unit
increase in category spanning (that is, when the category spanning decreases by one
category).
Interaction variables are presented in Models 6 through 8. Hypothesis 4b
predicted that adopting a more inclusive category label at the time of the IPO would be
more positively associated with the number of institutional investors during the Internet
bubble period than during the post bubble period, but I find no support for this hypothesis
in Model 6. Hypothesis 5b predicted that that changing category spanning to include
fewer categories at the time of the IPO would be more positively associated with the
number of institutional investors during the post bubble period than during the Internet
bubble period. However, no support for this prediction is found in Model 7. In Model 8
with all variables included, Hypothesis 5b is supported (β = -0.09, p ≤ 0.10).

14
I compared the differences in coefficients using the –test- command so that I can infer the same about the
population, but the results suggest that the coefficients are not significantly different.
112

Figure 9. Interaction effects of change in category spanning and Internet bubble period
on the quantity of institutional investors.

Figure 9 illustrates the interaction effect of the Internet bubble period and of
change in category spanning on the predicted number of institutional investors. The
dashed black line represents the effect of change in category spanning during the Internet
bubble period, holding all other variables at their mean, and the solid gray line represents
the effect of change in category spanning during the post bubble period, holding all other
variables at their mean. That both lines have positive slopes indicates that as change in
category spanning increased, that is, as the number of categories spanned at the time of
the IPO increased from the pre-IPO number, the greater the number of institutional
investors increased. The slope of the post bubble period, however, is much steeper than
113

that of the Internet bubble period, indicating that the impact of changing category
spanning to become more focused was more pronounced during that period. Thus, these
data demonstrate that becoming more focused had a relatively small impact on the
number of institutional investors during the Internet bubble period but was critical during
the post bubble period.
Quality of Institutional Investors
Table 5 reports the results of negative binomial regression models of the
relationship between changes in self-categorization strategies and the quality of
institutional investors, operationalized as the number of dedicated institutional investors.
Models 1 and 2 are baseline models that include control variables only. The degree of
category inclusiveness and number of categories spanned are entered separately in Model
2 to demonstrate that the effect of changes in self-categorization strategies is in addition
to the absolute effect of categories at the time of the IPO. Results from the baseline
models show that the number of underwriters, underwriter reputation, and being in a B2C
industry are positively associated with the quality of institutional investors endorsing an
issuing firm. Of note is that the Internet bubble period variable did not influence the
quality of institutional investors, but that being in a B2C industry.
Hypothesis 1b predicted that changing category inclusiveness to adopt a more
inclusive category label at the time of the IPO would be positively associated with the
quality of institutional investors, but Model 3 offers no support for that hypothesis.
Hypothesis 2b predicted that reducing the number of categories spanned at the time of the
IPO would be positively associated with the quality of institutional investors. I find
support for this hypothesis in Model 4, although marginal (β = 0.10, p ≤ 0.10).
114

Table 5
Results of Poisson Analyses Predicting the Quality of Institutional Investors
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Change in
inclusiveness
-0.04 -0.04 -0.02 -0.04 -0.01
(0.06) (0.06) (0.10) (0.06) (0.10)
Change in
spanning
0.10† 0.10† 0.09† 0.25** 0.25**
(0.06) (0.06) (0.06) (0.08) (0.08)
Change in
inclusiveness*
-0.02 -0.03
Internet
bubble period
(0.11) (0.11)

Change in
spanning*
-0.23* -0.24*
Internet
bubble period
(0.10) (0.10)

Prospectus
spanning
0.03 0.03 0.08 0.08 0.08 0.05 0.05
(0.05) (0.05) (0.06) (0.06) (0.06) (0.06) (0.06)
Prospectus
inclusiveness
0.01 -0.00 -0.02 -0.03 -0.03 0.01 0.02
(0.33) (0.34) (0.33) (0.33) (0.33) (0.34) (0.34)
Prospectus
inclusiveness
2

0.00 0.00 0.01 0.01 0.01 0.00 0.00
(0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03)
Internet bubble
period
0.16 0.16 0.15 0.15 0.14 0.15 0.17 0.18
(0.10) (0.10) (0.10) (0.10) (0.10) (0.11) (0.11) (0.11)
Firm size 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
Firm
performance
0.09 0.10 0.10 0.10 0.10 0.10 0.10 0.10
(0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08) (0.08)
Firm age -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00
(0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.06)
Founder
presence
-0.07 -0.06 -0.06 -0.05 -0.05 -0.05 -0.06 -0.06
(0.09) (0.09) (0.09) (0.09) (0.09) (0.09) (0.09) (0.09)
% CEO
ownership
0.46 0.47 0.47 0.46 0.46 0.46 0.45 0.45
(0.31) (0.31) (0.31) (0.31) (0.31) (0.31) (0.31) (0.31)
Industry
category:
0.21* 0.22* 0.21* 0.22* 0.21* 0.21* 0.21* 0.21*
B2C (0.10) (0.10) (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)

Industry
category:
0.09 0.08 0.08 0.07 0.07 0.07 0.07 0.07
Internet
Infrastructure
(0.10) (0.10) (0.10) (0.10) (0.10) (0.10) (0.10)
(table
(0.10)
continues)
115

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
# Press
releases:
-0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00
1 year before
filing
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

# Press
releases:
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Filing and
pricing
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)

Pre-IPO media
exposure
0.00 0.00 -0.00 0.00 0.00 0.00 -0.00 0.00
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
# Underwriters 0.03* 0.03* 0.03* 0.03* 0.03* 0.03* 0.04* 0.04*
(0.01) (0.02) (0.01) (0.02) (0.02) (0.02) (0.02) (0.02)
Underwriter
reputation
0.12* 0.12* 0.12* 0.12* 0.12* 0.12* 0.12* 0.12*
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
Venture capital
funding
0.05 0.04 0.04 0.06 0.05 0.05 0.03 0.03
(0.13) (0.12) (0.12) (0.12) (0.12) (0.12) (0.12) (0.12)
Lambda -0.04 -0.04 -0.06 -0.04 -0.07 -0.06 -0.02 -0.01
(0.45) (0.45) (0.44) (0.44) (0.44) (0.44) (0.44) (0.45)
Constant -1.59 -1.85 -1.68 -1.74 -1.59 -1.60 -1.65 -1.68
(1.10) (1.48) (1.53) (1.45) (1.52) (1.52) (1.53) (1.54)

Log likelihood -657.44 -656.28 -655.90 -654.96 -654.67 -654.66 -652.56 -652.51
Wald chi-
square
799.1*** 821.8*** 808.9*** 852.7*** 841.0*** 855.7*** 864.0*** 872.5***
Wald test
b
- - 0.44 2.66 2.91 0.02 5.04* 5.07†
Observations 454 454 454 454 454 454 454 454
Note. † p ≤ 0.1, * p ≤ 0.05, ** p ≤ 0.01, *** p ≤ 0.001
a.
Robust standard errors in parentheses; significance tests are one-tailed for directional
hypotheses and two-tailed for control variables
b
Relative to Model 2

Hypothesis 3b predicted that adopting fewer category labels will be more
positively associated with the quality of institutional investors’ attention than adopting a
more inclusive category label. In Model 5, only the coefficient for adopting fewer
category labels is significant (β = 0.10, p ≤ 0.10), so Hypothesis 3b is supported for the
sample of this study.
15

15
I compared the differences in coefficients using the –test- command so that I can infer the same about the
population, but the results suggest that the coefficients are not significantly different.
116

The study’s findings regarding the interaction variables appear in Models 6
through 8. Hypothesis 4b predicted that changes in category inclusiveness would be more
positively associated with the quality of institutional investors during the Internet bubble
period, but this hypothesis is not supported in Model 6. Hypothesis 5b predicted that
adopting a smaller number of categories would be more positively associated with the
quality of institutional investors during the post bubble period than during the Internet
bubble period, which is supported in Model (β = -0.23, p ≤ 0.05).
Further interpreting the interaction effect, if an issuing firm were to increase the
change in spanning, that is, to decrease the number of categories spanned by one category
during the post bubble period, the firm’s rate for adding dedicated institutional investors
would be expected to increase by a factor of 1.281, while holding all other variables in
the model constant. That is, the number of dedicated institutional investors participating
in the issuing firm’s IPO will increase by 28.1 percentage points with every one unit
increase in change in spanning, that is, when the category spanning decreases by one
category during the post bubble period.

117

Figure 10. Interaction effects of change in category spanning and Internet bubble period
on the quality of institutional investors.

Figure 10 illustrates the interaction effect of the Internet bubble period and
changes in spanning on the predicted number of dedicated institutional investors. The
dashed black line represents the effect of change in spanning during the Internet bubble
period, holding all other variables at their mean, and the solid gray line represents the
effect of change in spanning after the Internet bubble period, holding all other variable at
their mean. That both lines have positive slopes indicates that as change in spanning
increases, that is, as the number of categories spanned at the time of the IPO decreases
from during pre-IPO, the greater the increase in the predicted number of dedicated
institutional investors. The slope of the post bubble period is much steeper than that of
the Internet bubble period, however, indicating that the impact of changes in spanning
118

and thus becoming more focused is more pronounced during the post bubble period.
Thus, becoming focused appears to have had a negligible influence on the number of
dedicated institutional investors during the Internet bubble period but was critical during
the post bubble period.
Robustness Checks
To ensure the robustness of the findings, additional analyses were performed.
First, year dummies were included in each model to account for any year-specific effects
on dependent variables. In results not reported here, all hypotheses are still supported.
Thus, during the period of the current study, the effect of the Internet bubble and post
bubble periods seems to be more important that year effects in determining the effect of
changes in self-categorization strategies on the dependent variables.
Second, an alternative explanation to the current finding regarding the positive
relationship between change in category inclusiveness and underpricing is that change in
category inclusiveness to become broader is understood by investors as increased
ambiguity. From an information asymmetry perspective, such increased ambiguity
further increases ex ante uncertainty and will thus be positively associated with
underpricing. For instance, Beatty and Ritter (1986) demonstrate a positive link between
ex ante uncertainty about an IPO’s value and its expected initial return. I, on the other
hand, take a behavioral finance approach in explaining underpricing, which argues that
changing category inclusiveness to become broader conveys growth potential to
investors, particularly to sentiment-driven retail investors, which drives up underpricing.
To investigate the alternative explanation and check the sensitivity of the main
results regarding underpricing, I therefore used a different dependent variable as a proxy
119

for retail investors’ attention: whether investors post messages on the issuing firm’s stock
discussion forum on the first trading day. Prior studies in finance have used Internet
message board activities to gauge retail investors’ attention and its impact on stock price
(Depken & Zhang, 2010; Hirschey, Richardson, & Scholz, 2000; Sabherwal, Sarkar, &
Zhang, 2008; Tumarkin, 2002; Tumarkin & Whitelaw, 2001). During the Internet bubble
period, many of these Internet message boards, such as siliconinvestor.com,
ragingbull.com, and boards.fool.com, were actively used by retail investors, ranging from
“request(s) for advice, ‘insider’ tips, and press releases, to attack(s) on the company’s
management or against other posters’ opinions” (Taboada, 2004, p. 63). There are distinct
message boards for each stock or sector that users can participate in. For this study, I
collected data on whether investors posted messages from one of the prominent stock
discussion forums, the siliconinvestor.com, on the issuing firm’s message board on the
first trading day, as this measure may serve as a proxy for retail investors’ attention and
interest in a particular IPO. Dummy variable Internet message board activity was coded 1
if investors discussed the IPO on the first trading day, and 0 otherwise. Since the
dependent variable is a dummy variable, I used logistic regression to analyze the effect of
self-categorization strategies on retail investors’ attention. The same set of control
variables was used as in analyzing underpricing.
Table 6 reports the results of logistic regression models of the relationship
between changes in self-categorization strategies and retail investors’ attention. Among
the sample firms, about 59% of IPOs were discussed by retail investors on the forum.
During the Internet bubble period, this figure was much higher, 76%. Models 1 and 2 are
baseline models including control variables only. Results from the baseline models show
120

that the Internet bubble period, being in the Internet infrastructure industry, pre-IPO
media exposure, high underwriter reputation, venture capital financing, and a greater
number of institutional investors are positively associated with retail investors’ attention.
On the other hand, firm size, firm age, pricing below range, and institutional ownership
percent are negatively associated with retail investors’ attention. Of note is that pre-IPO
media exposure is positively associated with retail investors’ attention, which was not
found to be significant in the other analyses, although it is consistent with previous
findings that retail investors are influenced by attention-grabbing stocks, when such
attention is generated by pre-IPO media exposure (Kiefer, 2013; Shiller, 2000). These
data also reveal that retail investors were drawn to small and young firms, which again
was not found to be significant in other analyses.
Consistent with the results of OLS regression predicting underpricing, Models 3
provides support for Hypothesis 1a, which predicted the positive effect of adopting a
more inclusive category on retail investors’ attention (β = 0.26, p ≤ 0.05, pseudo-R
2
=
0.349). Again consistent with the OLS regression results, I find no support for Hypothesis
2a, which predicted that changing category spanning to fewer categories at the time of the
IPO is positively associated with underpricing. ). Also, consistent with the OLS
regression results which supported Hypothesis 3a, in Model 5, only the coefficient for
adopting a more inclusive category label is marginally significant IPO (β = 0.26, p ≤
0.10, pseudo-R
2
= 0.350).

121

Table 6
Results of Logistic Regression Analyses Predicting Internet message board activity
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Change in
inclusiveness
0.26* 0.26† 0.45† 0.25† 0.42†
(0.16) (0.16) (0.32) (0.15) (0.31)
Change in
spanning
-0.12 -0.11 -0.11 -0.47† -0.46†
(0.18) (0.18) (0.18) (0.31) (0.30)
Change in
inclusiveness*
-0.25 -0.23
Internet bubble
period
(0.33) (0.33)

Change in
spanning*
0.47† 0.45†
Internet bubble
period
(0.35) (0.34)

Prospectus
spanning
-0.14 -0.12 -0.21 -0.18 -0.18 -0.16 -0.16
(0.16) (0.17) (0.20) (0.20) (0.19) (0.20) (0.20)
Prospectus
inclusiveness
0.13 0.21 0.18 0.26 0.25 0.21 0.20
(0.82) (0.88) (0.82) (0.87) (0.83) (0.89) (0.85)
Prospectus
inclusiveness
2

-0.01 -0.00 -0.01 -0.01 -0.01 -0.00 -0.00
(0.06) (0.07) (0.06) (0.07) (0.06) (0.07) (0.07)
Internet bubble
period
2.95*** 3.00*** 3.04*** 3.01*** 3.05*** 3.11*** 3.05*** 3.10***
(0.36) (0.37) (0.37) (0.37) (0.37) (0.39) (0.37) (0.39)
Firm size -0.37* -0.35† -0.36† -0.34† -0.35† -0.35† -0.35† -0.35†
(0.18) (0.19) (0.19) (0.19) (0.19) (0.20) (0.19) (0.19)
Firm
performance
-0.05 -0.04 -0.02 -0.04 -0.02 -0.01 -0.02 -0.02
(0.15) (0.16) (0.16) (0.16) (0.16) (0.16) (0.16) (0.16)
Firm age -0.47* -0.48* -0.47* -0.48* -0.48* -0.49* -0.48* -0.48*
(0.21) (0.21) (0.21) (0.21) (0.21) (0.22) (0.21) (0.22)
Founder
presence
-0.16 -0.13 -0.13 -0.13 -0.13 -0.12 -0.10 -0.10
(0.30) (0.30) (0.29) (0.30) (0.29) (0.29) (0.29) (0.29)
% CEO
ownership
0.73 0.70 0.69 0.76 0.74 0.78 0.72 0.75
(1.10) (1.10) (1.14) (1.12) (1.16) (1.17) (1.15) (1.16)
Industry
category: B2C
-0.11 -0.07 -0.01 -0.05 0.01 0.00 0.01 0.00
(0.34) (0.34) (0.35) (0.34) (0.35) (0.34) (0.34) (0.34)
Industry
category:
1.09** 1.07** 1.10** 1.09** 1.12** 1.11** 1.16** 1.15**
Internet
Infrastructure
(0.35) (0.36) (0.37) (0.36) (0.37) (0.37) (0.37)
(table
(0.37)
continues)

122

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
# Press releases: 0.02 0.01 0.01 0.02 0.01 0.01 0.01 0.01
1 year before
filing
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)

# Press releases: -0.00 0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00
Filing and
pricing
(0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02)

Pre-IPO media
exposure
0.03† 0.03* 0.03* 0.03* 0.03* 0.03* 0.03* 0.03*
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
# Underwriters 0.04 0.04 0.04 0.04 0.04 0.05 0.04 0.04
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
Underwriter
reputation
0.34** 0.34** 0.35** 0.34** 0.35** 0.35** 0.35** 0.35**
(0.12) (0.12) (0.13) (0.12) (0.13) (0.13) (0.13) (0.13)
Venture capital
funding
0.92* 0.95* 1.01* 0.94* 1.01* 1.00* 1.02* 1.01*
(0.45) (0.44) (0.45) (0.44) (0.45) (0.45) (0.45) (0.45)
Priced above
range
0.21 0.21 0.18 0.22 0.20 0.19 0.21 0.20
(0.27) (0.27) (0.28) (0.28) (0.28) (0.28) (0.28) (0.28)
Priced below
range
-1.01† -0.97† -1.00 -0.92 -0.94 -0.91 -0.98 -0.95
(0.60) (0.59) (0.63) (0.59) (0.64) (0.63) (0.64) (0.63)
% Institutional
ownership
-0.50* -0.50* -0.47* -0.49* -0.46* -0.47* -0.46* -0.47*
(0.23) (0.22) (0.22) (0.23) (0.23) (0.23) (0.22) (0.22)
# Institutional
investors
0.02* 0.02* 0.02* 0.02* 0.02* 0.02* 0.02* 0.02*
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Use of proceeds
specificity
-0.02 -0.03 0.01 -0.03 0.01 0.01 0.02 0.02
(0.32) (0.33) (0.32) (0.33) (0.32) (0.33) (0.33) (0.34)
IPO offer size 0.37 0.33 0.33 0.30 0.30 0.31 0.30 0.31
(0.28) (0.28) (0.28) (0.29) (0.29) (0.29) (0.29) (0.29)
IPO hotness -0.88 -0.86 -0.85 -0.86 -0.86 -0.83 -0.87 -0.84
(0.74) (0.75) (0.75) (0.75) (0.75) (0.75) (0.75) (0.75)
Lambda 3.25* 3.28* 3.49* 3.28* 3.48* 3.55* 3.47* 3.53*
(1.46) (1.46) (1.47) (1.46) (1.47) (1.48) (1.46) (1.48)
Constant -3.67 -3.69 -4.54 -3.35 -4.20 -4.43 -4.12 -4.34
(5.16) (5.83) (5.99) (5.86) (6.00) (5.96) (5.99) (5.96)

Psuedo R-square 0.342 0.345 0.349 0.345 0.350 0.351 0.352 0.353
Log likelihood -201.69 -201.06 -199.56 -200.87 -199.40 -199.04 -198.70 -198.38
Wald chi-square 135.44*** 134.83*** 135.56*** 139.27*** 138.61*** 138.86*** 141.30*** 140.70***
Log likelihood
ratio test
- - 2.99† 0.39 3.32 4.04 4.72 5.35
Observations 453 453 453 453 453 453 453 453
Note. † p ≤ 0.1, * p ≤ 0.05, ** p ≤ 0.01, *** p ≤ 0.001
a.
Robust standard errors in parentheses; significance tests are one-tailed for directional
hypotheses and two-tailed for control variables

123

Examining interaction variables in Models 6 through 8, the results are again
consistent with the OLS regression. The data do not support Hypothesis 4a; instead,
adopting a more inclusive category label at the time of the IPO is positively associated
with retail investors’ attention regardless of the period. Also, change in category spanning
is found to be positively associated with retail investors’ attention during the Internet
bubble period in Model 7 (β = 0.47, p ≤ 0.1, pseudo-R2 =0.352), contradicting
Hypothesis 5a. Thus, results from the logistic regression analysis suggest that
underpricing partially reflects retail investors’ attention, and that change in self-
categorization strategies draw the attention of optimistic retail investors, which in turn
drives up the first-day closing price and underpricing.
Discussion and Conclusion
Despite the huge consequences that categorization has for organizations, prior
category studies have paid little attention to how organizations can actively influence
their categorization by external audiences. Research has recently begun to acknowledge
the importance of strategic categorization (Durand & Paolella, 2013; Vergne & Wry,
2014), but this has not resulted in corresponding theoretical development and empirical
findings. The current study makes a key contribution toward filing this gap by arguing
and empirically demonstrating that organizations can strategically use self-categorization
labels to influence external audiences’ perceptions and evaluations. In particular, the
results of this study support its premise that organizations can manage the degree of
category inclusiveness and range of category spanning to influence external audiences’
evaluation and that the effectiveness of such strategic categorization depends on the level
124

of audience knowledge and the prevailing logic of valuation.
16
Specifically, while the
overall results of the study suggest that changing category inclusiveness to take on a
broader identity and changing category spanning to create a more focused identity are
positively evaluated by IPO investors, they also indicate that the effectiveness of these
self-categorization strategies differs among different audiences. Specifically, the results
demonstrate that institutional investors are influenced by issuing firms that reduce the
pre-IPO number of categories at IPO, especially during the post bubble period, but that
retail investors are influenced by issuing firms that increase the degree of category
inclusiveness at IPO, regardless of the period.
Further analyzing the findings, the study shows that reducing the number of
categories spanned has an even stronger influence on attracting dedicated institutional
investors among institutional investors. This suggests that dedicated investors, who are
characterized by a low rate of stock turnover and low diversification strategy in their
portfolio and thus maintain a longer and more stable relationship with the firms in which
they invest (Bushee, 1998, 2001; Bushee & Goodman, 2007; Bushee & Noe, 2000),
prefer firms that signal their legitimacy by conforming to the rules of the stock market.
Attracting dedicated institutional investors is valuable for firms, since firms endorsed by
dedicated investors can pursue strategies with long-term effects (Higgins & Gulati,
2006). The results also show that retail investors reacted positively to reducing the

16
While Pontikes (2012) finds support for the effect of absolute categories, that is, the number of categories
spanned, the current study finds that the change in categorization influences investors’ attention and
evaluation. This difference in finding may be due to the fact that IPO investors are particularly interested in
the future growth prospects. Thus, these investors may be more focused the continued pace of change
rather than the current status and thus interpret change in categorization as a signal of continued
commitment for change in the future.

125

number of categories spanned during the Internet bubble period but negatively reacted to
it during the post bubble period. This finding is in the opposite direction of the original
hypothesis and holds when tested for underpricing and retail investors’ attention proxied
by messages posted on Internet discussion forums. This reaction can be partially
attributed to the fact that retail investors may interpret reducing the number of categories
spanned as an indication the firm is abandoning the pursuit of other potential revenue-
generating avenues, particularly during the post bubble period when prospects for future
growth appeared smaller.
Regarding the significance of the findings, this study demonstrates a significant
economic impact of strategic categorization on underpricing. For instance, for an average
issuing firm in the sample that offers 6,600,000 shares at $14.75 per share, the firm’s
offer price will increase an average of 76.6% on the first day, closing at $26.05. If this
average firm were to adopt a more inclusive category at IPO compared to pre-IPO,
holding everything else constant, the firm’s offer price will increase 86.6% on the first
day, closing at $27.52. The additional capital gain of $1.47 that results from adopting a
more inclusive category would mean that an additional 9.7 million will be left on the
table.
By highlighting an organization’s role in strategically managing its categorization,
this study makes several contributions to category studies. First, it contributes to category
studies by integrating a micro perspective on categorization into the macro perspective
that dominated prior category studies. Specifically, the current study adopts an agentic
approach by reconnecting with the cognitive and social psychological approaches to
categorization which advocated organizations’ active role in categorization. Moreover,
126

focusing on the complementarities of the micro and macro perspectives allows
researchers to consider both vertical and horizontal structures of categories (that is, the
degree of category inclusiveness and the range of category spanning) when examining
categorization (Wry & Lounsbury, 2013; Wry et al., 2013). This shift to a more balanced
view including both the vertical and horizontal structure of categories also enables
examination of more subtle but systematic ways in which organizations can influence
their categorization by external audiences. Although changing the range of category
spanning may involve increasing or decreasing lines of business, changing the level of
category inclusiveness may not require any changes in the organization’s offerings.
Second, given the recent emphasis on audiences in the categorization literature
(Pontikes, 2012; Wry et al., 2013), this study advances recent category studies by
examining the role of heterogeneous audiences and their evaluation of categorization. In
particular, this study advances understanding of the effect of audience heterogeneity on
strategic categorization by demonstrating that audiences with different levels of
knowledge evaluate the same self-categorization strategies differently. Thus, the current
study proposes a bilateral approach to understanding categorization that includes the
categorical sensegiving of organizations and the categorical sensemaking of audiences.
By so doing, the study responds to Pollock and Rindova’s (2003) call for a need to
disaggregate “the market” into different types of investors to further understand the role
of different investor characteristics on information processing.
Third, this study advances category studies by suggesting another dimension that
may affect the effectiveness of strategic categorization: how different logics of valuation
influence how strategic categorization is perceived and evaluated by audiences. Building
127

on prior studies showing that different stages of industry development may make external
audiences more or less tolerant of ambiguous categorization (Durand et al., 2007; Naivis
& Glynn, 2010), this study further suggests that certain self-categorization strategies may
better fit the prevailing logic during a given period. This study therefore holds that
strategic categorization does not occur in vacuum, but that the institutional environment
and dominant logic serve “as a repository of legitimacy resources that can be pursued
strategically by organizations through symbolic management” (Lamertz & Martens,
2007, p. 3).
This study also contributes to the literature on organizational identity by showing
how organizations make categorical identity claims to influence the categorization
process by external audiences but that such claims may shift depending on the type of
audiences and the prevailing logic of valuation, thus varied according to the legitimacy
needs over time. This, to some extent, is in line with the recent conceptualization of
organizational identity from the institutional perspective (Glynn, 2008) that has
emphasized an organization’s active role in constructing its own identity, while also
emphasizing how categorical claims are institutionally embedded. Thus, categories are
not simply a set of essential organizational attributes but social categories that “direct(s)
attention to the social meanings and structures that embed organizational identity and
induce conformity” (Glynn, 2008, p. 419).
In addition, this study has implications for institutional theory. First, this study
has implications for studies on legitimacy by building on prior studies that have focused
on firms’ active engagement in strategically managing their own legitimacy (Oliver,
1991; Suchman, 1995). In particular, the current study’s focus on whether organizations
128

engage in strategic categorization to meet external audiences’ expectations by spanning
fewer categories at IPO or to manage or even change those expectations by increasing
category inclusiveness at IPO is relevant to whether organizations conform to
institutional constraints or attempt to manage external perceptions to appear legitimate to
external audiences (Oliver, 1991). Second, the findings of the current study have
implications for studies that emphasize the role of language in gaining legitimacy by
suggesting that claiming categories can be another way of legitimating institutional
change by persuading and influencing organizational constituencies (Suddaby &
Greenwood, 2005). Third, this study also has implications for institutional
entrepreneurship by suggesting strategic categorization can be “endogenous drivers of
change” (Thornton, Ocasio, & Lounsbury, 2012, p. 147) that allow organizations to
influence their own categorization in ways that appeal to external audiences within
institutional constraints (Creed, Scully, & Austin, 2002; DiMaggio, 1988; Fligstein,
1997).
The current study also has implications for the framing literature. As mentioned
earlier, strategic categorization can be thought of as a form of framing. Strategic
categorization involves emphasizing certain category labels that are preferred by the
organization while hiding other possible labels, whereas framing is “to select some
aspects of a perceived reality and make them more salient in a communicating text, in
such a way as to promote a particular problem definition, causal interpretation, moral
evaluation, and/or treatment recommendation” (Entman, 1993, p. 52). Moreover, the
relationship between organizations’ strategic categorization and the effect of
heterogeneous audiences can also be related to the literature on framing, particularly
129

where two concepts of framing, that is, the media frames and audience frames are
differentiated (Scheufele, 1999). Here, media frames mean the “devices embedded in
political discourse” (Kinder & Sanders, 1990, p. 74) while audience frames mean the
“internal structures of the mind” (Kinder & Sanders, 1990, p. 39) or an information-
processing schemata of audiences (Entman, 1993). As Gamson, Croteau, Hoynes, and
Sasson (1992) argue, audiences “evaluate news in light of past learning and determine
how well it squares with the reality that they have experienced directly or vicariously” (p.
390). Findings of the current study that an organization’s categorical sensegiving and
audiences’ categorical sensemaking co-create the organization’s categorical identity are
parallel to these two types of frames.
This study also contributes to the entrepreneurship literature and studies on
nascent markets by showing how employing self-categorization strategies focused on
different audiences’ expectations can facilitate resource acquisition, particularly in
nascent markets. Prior studies have suggested that entrepreneurial firms can obtain
resources by highlighting the quality of their founding team (e.g., Eisenhardt &
Schoonhoven, 1990) or the reputation of affiliated organizations (e.g., Higgins & Gulati,
2003). This study broadens that current understanding by further adding to prior studies
that focused on how firms in the early stages can build legitimacy and acquire resources
by engaging in different types of signaling that are more symbolic (Martens, Jennings, &
Jennings, 2007; Wry & Lounsbury, 2013; Zott & Huy, 2007).
Finally, this study has implications for IPO research, particularly studies taking a
behavioral finance perspective on IPOs, by showing that investors are influenced not only
by an issuing firm’s fundamentals but also by non-financial aspects of the firm such as its
130

signals regarding further growth prospects and alignment with the expectations of the
stock market. Finally, this study also has important managerial implications. By
examining how firms can reduce potential disadvantages in the stock market by
strategically managing their self-categorization, the results of the current study provides
insights for firms and entrepreneurs planning IPOs and for potential investors evaluating
IPOs.
Directions for Future Research
This investigation of the process and consequences of strategic categorization is
not without limitations and thus suggests several potentially interesting avenues for future
research. First, while this study is focused on a particular time period and on a specific
industry sector, it would be useful for future studies to explore how firms engage in
strategic categorization in different settings to establish the generalizability of the effect
of strategic categorization. While researchers have started to examine the emergence of
new categories by focusing on how organizations can “act strategically to theorize new
categories around ‘codes’ and ‘attributes’ which may be discounted within extant
categories” (Vergne & Wry, 2014, p. 78), more research is need to understand how
categories emerge and fall out of use (Kennedy & Fiss, 2013). Also, though the current
study and some prior studies have focused on how firms may be devalued less for
ambiguous categorization when the categorization system itself is yet to be established
(Glynn & Navis, 2013; Granqvist et al. 2013; Reuf & Patterson, 2009), little is known
about how firms in well-established or even mature industries engage in strategic
categorization. Firms in mature industries have a great stake in reinventing themselves
for continued survival and growth. Thus, investigating how such firms strategically use
131

self-categorization labels to recategorize them as a viable entity, or use strategic
categorization to aid the re-emergence of technologies (e.g., Raffaelli, 2013) should be a
potentially valuable research direction.
Second, while the current study investigates strategic categorization in terms of
changing the degree of category inclusiveness and range of category spanning, future
work needs to be done to establish strategic categorization in terms of “strategically
pursing membership in one category over another” (Vergne & Wry, 2014, p. 78). For
instance, Tesla Motors could have assumed a clean tech identity when going public, an
identity that had infused the company with investments from venture capitalists and the
government earlier in its life. Instead, its identity as an automobile manufacturer, or more
specifically, an electric automobile manufacturer, seems to have become more prominent
since its IPO. Thus, it would be interesting to examine how an organization can
strategically influence external audiences to select the organization’s preferred
categorical membership among many other possible categories.
Third, this study infers, without directly measuring, that audiences are influenced
by change in self-categorization. Future studies could combine experiments and
qualitative approach to more directly examine how audiences perceive and interpret
strategic categorization attempts by organizations. Also, the current study is not able to
uncover whether a firm’s change in self-categorization is intentional—and thus
strategic—or unconscious. Nor is the current study able to distinguish whether a firm’s
strategic categorization is symbolic or substantial. Thus, future studies should advance
the current findings by further delineating how an organization’s intentionality or
categorization that decouples with actual resources and capabilities increase or decrease
132

the effectiveness of strategic categorization.
Fourth, future studies could also focus on the antecedents of the strategic
categorization by investigating “category structures as an outcome and an
accomplishment to be explained” (Kennedy & Fiss, 2013, p. 1139). Although Wry (2011)
has examined antecedents to category spanning and Granqvist et al. (2013) have
identified factors leading to the selection of different labeling strategies by executives,
researchers still know little about why some firms engage in more categorical sensegiving
than others. It is conceivable that strategic categorization is a form of “social skills,” that
is, “the ability to motivate cooperation of other actors by providing them with common
meanings and identities in which actions can be undertaken and justified” (Fligstein,
1997, p. 398). According to Fligstein (1997), using social skills requires knowledge of
“(a) the current condition of the organizational field and the place of the various groups
in that field and (b) the types of strategic action that ‘make sense’ given the objective
conditions” (Fligstein, 1997, p. 398). Hence, examining why some organizations are
better equipped to engage in strategic categorization than are others due to their prior
industry experience or top management team’s or board’s social capital could be an
interesting area of future research.
In addition, future research regarding the role of status on strategic categorization
would be interesting. According to the literature on status, particularly that regarding
middle-status conformity (Phillips & Zuckerman, 2001), high-status organizations can
more confidently deviate from conventional behavior since their status already provides
legitimacy (Rao et al., 2005). For instance, firms such as Twitter or Facebook, which
already had high status prior to IPO, may pursue different self-categorization strategies
133

compared to firms with lower status. In regards to strategic categorization in the IPO
context in particular, Lamertz and Martens (2011) recently suggested that firms going
through the IPO process depend on a team of professional firms who collectively prepare
the IPO prospectus, during which they work on selecting the market labels to represent
the firm’s identity. Lamertz and Martens (2011) argued that such sensegiving efforts
should be understood in terms of Goffman (1974)’s team-based effort to control a social
interaction situation. Thus, a promising area for future research would be to examine how
different stakeholders involved in the IPO process jointly influence the strategic
categorization decisions based on such factors such as network position and visibility.
Fifth, future studies could fruitfully expand on the current study’s focus on
category relationships at both the vertical and horizontal levels, examining additional
properties or characteristics of categories examined by other scholars, such as fuzziness
(Hannan et al., 2007), leniency (Pontikes, 2012), and contrast (Kovács & Hannan, 2010).
Another area of potential interest is to compare how the order of the IPO—that is,
whether the firm is among the first of similar firms to go through the IPO process—
influences the effectiveness of strategic categorization. Similar to the idea proposed by
Smith (2011) that atypical organizations sometimes elicit significant attention and
prosper, It may be that the same information regarding strategic categorization might be
interpreted differently depending on the temporal position of the firm’s IPO. Future
studies might focus on a firm’s position within the life cycle of its industry as well as the
relative timing of its IPO to better understand the nuanced effect of category affiliations.
Sixth, in addition to the role of organizations and audiences, the role of
information intermediaries can be explored in future studies. Information intermediaries
134

such as the media influence how external audiences evaluate a firm and its action
(Deephouse, 2000; Kennedy, 2008; Pollock & Rindova, 2003; Zuckerman, 2000). The
media not only report and disseminate information, but in an effort to understand the
same ambiguity that other stakeholders face, they also present their own interpretations,
which in turn feed into the sensemaking processes of other stakeholders. For instance, the
effect of strategic categorization on influencing external audiences’ categorization and
subsequent evaluation may differ depending on whether the media’s categorization of an
organization is congruent with the organization’s self-categorization or not. In a follow-
up analysis not reported here, I find that investors’ attention, measured by underpricing,
is more positive when the media’s depiction of an organization is congruent with the
organization’s self-categorization during the post bubble period. Future research should
expand on these ideas to examine how information intermediaries influence the effect of
strategic categorization on external audiences’ categorization and evaluation.
Finally, and more specifically to the IPO setting, this study limited its
examination to how changes in self-categorization strategies before and during IPO
influence investors’ attention at IPO. Future research could extend the time horizon of
this effect to investigate how this strategic categorization can influence the firm beyond
IPO. Although IPO is certainly an important milestone for entrepreneurial firms, the
decisions a firm makes at IPO have far-reaching, long-term consequences for its post-IPO
growth (Dalziel, White, & Arthurs, 2011; Wu, 2012). For example, Tripsas (2009)
illustrated how the choice of initial category labels shapes a firm’s identity and later
influence the firm’s strategic actions. Stigliani and Elsbach (2012) also acknowledged the
potential of the “stickiness” of initial organizational identities and suggested that
135

organizational leaders should pay attention to their choice of category labels. Thus, there
is opportunity to examine how the change as well as the final state of categorization at
IPO influences the scope decision and direction of the firms post-IPO. In addition, future
studies could also investigate the extent to which the effects of strategic categorization
are sustained or diminished after the IPO. Examining how and to what extent the identity
formed at the time of the IPO has a lasting effect on a firm’s public life offers a
promising avenue for future research.
In conclusion, the current study’s conceptualization of strategic categorization
that considers both the categorical sensegiving by organizations and the categorical
sensemaking by heterogeneous audiences presents a bilateral approach to the
categorization process. Moreover, integrating micro and macro perspectives on
categorization allows researchers to shift the focus of previous research on spanning
multiple horizontally related categories to a more balanced view that also considers
vertically related categories with different degrees of inclusiveness. This study thus fuels
emerging ideas on examining strategic categorization and paves the way for future
research to extend the notion of strategic categorization by further considering
antecedents to and subsequent effects of strategic categorization, different market
contexts, and different category attributes.

136

GENERAL DISCUSSION AND CONCLUSIONS
This dissertation was designed to explore whether and how organizations can
strategically influence the categorization process by external audiences in a way that
leads to the preferred categorization of these organizations and that results in favorable
evaluations by external audiences. Thus far, category studies have mostly focused on
examining the disciplining role of categories, in which these categories are considered as
a component of the external environment of organizations (Vergne & Wry, 2014;
Zuckerman, 1999): the assumption here is that categories are imposed on organizations
by external audiences based on the resources and capabilities of these organizations
(Hannan, Pólos, & Carroll, 2007; Hsu & Hannan, 2005). Such a perspective indicates that
while categories are imperative for organizations (Zuckerman, 1999), categories, for
external audiences, enable comparison and evaluation of organizations and offerings by
grouping them (Hsu, 2006; Hsu, Hannan, & Koçak, 2009; Zuckerman, 1999; Zuckerman,
Kim, Ukanwa, & Rittmann, 2003) and conveying organizational identity (Hsu & Hannan,
2005; Zuckerman et al., 2003).
Taking stock of extant category studies, however, I pointed out the need to
develop an understanding of the categorization process that incorporates the role of
organizations, particularly given the huge stakes involved in undesirable categorization,
such as being devalued or ignored by external audiences when an organization or an
offering does not readily fit into their pre-established category structure (Hsu, 2006; Hsu
et al., 2009; Rao, Monin, & Durand, 2003; Zuckerman, 1999). In other words, as
categorization, by setting the expectations that external audiences hold about an
organization (Zuckerman, 1999, 2000), influences the organization’s legitimacy and
137

favorability, which in turn influences its survival and growth (Meyer & Rowan, 1977;
Oliver, 1991), my basic premise was that organizations would be highly interested in
influencing such categorization process, particularly in terms of conveying their preferred
categorical membership, to guide external audiences’ categorization process and gain
legitimacy and favorability (Oliver, 1991; Suchman, 1995).
In this dissertation, I proposed the notion of strategic categorization, which I
defined as an organization’s intentional and socially attentive categorical claim-making
that shapes its organizational identity by influencing the categorization process of
external audiences to attain a desired outcome, and theoretically and empirically explored
the process and consequences of strategic categorization. The dissertation consisted of
two essays: The first essay developed a theoretical framework to understand the notion of
strategic categorization, and the second essay empirically investigated the effect of
strategic categorization on audience’s attention and evaluations.
More specifically, in the first essay, I built on both micro and macro perspectives
of categories and categorization and asserted that organizations can engage in categorical
sensegiving to guide the sensemaking process of their external audiences. In particular, I
highlighted that the agentic role of organizations suggested by the cognitive
psychological perspective (Porac & Thomas, 1990, 1994; Porac, Thomas, & Baden-
Fuller, 1989; Porac, Thomas, Wilson, Paton, & Kanfer, 1995) allows for the possibility of
strategic self-presentation by organizations and that its attention to the vertical structure
of categories enables identification of subtle forms of strategic self-presentation within
the institutional constraints examined by the sociological perspective. I also introduced
different types and modes of strategic categorization and illustrated how organizations
138

can use ambiguity as a strategic categorization device. In addition, I uncovered the
enabling conditions of ambiguity-based strategic categorization by considering
organizational level characteristics such as age and status, industry-level characteristics
such as nascent market conditions, and the role of audiences in terms of their knowledge
and expertise. Therefore, the first essay provided a more complete understanding of the
categorization process by highlighting the active role of organizations in strategically
influencing categorization.
The theoretical model advanced in the first essay then served as the foundation for
the second essay. In the second essay, I investigated the effect of strategic categorization
on external audiences’ attention and evaluations of firms in the Internet sector that went
through the initial public offering (IPO) process. In particular, I hypothesized that
organization strategically influences the categorization process in at least one of two
ways: First, organizations can move up or down the vertical structure of categories—that
is, they increase or decrease the degree of inclusiveness to convey a broader or narrower
identity; second, organizations can increase or decrease the number of categories spanned
to convey a more or less focused identity. I also examined a bilateral perspective on the
categorization process by considering both an organization’s self-categorization and
external audiences’ categorization of the organization by incorporating into the analysis
the role of audience heterogeneity and its effect on strategic categorization. In addition, I
investigated how the prevailing logic of valuation in the stock market influences the
effect of strategic categorization.
Empirically, I tested these hypotheses on a sample of firms in the Internet sector
that went through the initial public offering (IPO) process between 1997 and 2012 to
139

examine how these firms strategically use self-categorization labels to attract attention
and receive favorable valuations from potential investors, who consist mostly of
institutional and retail investors. The results were generally supportive of the hypotheses
in that they indicated that organizations can manage the degree of category inclusiveness
and range of category spanning to influence external audiences’ evaluation and that the
effectiveness of such strategic categorization depends on the level of audience knowledge
and the prevailing logic of valuation. Specifically, the overall results showed that
changing category inclusiveness to take on a broader identity and changing category
spanning to create a more focused identity were positively evaluated by IPO investors.
Moreover, the findings indicated that whereas institutional investors were positively
influenced with a reduction in the number of categories spanned at IPO, especially during
the post bubble period, retail investors were positively influenced with an increase in the
degree of category inclusiveness at IPO, both during and after the Internet bubble.
Taken holistically, my dissertation makes several important contributions to
different streams of literature, as discussed in each essay. Here, I recapitulate the
contributions this dissertation makes to category studies in particular. First, this study
advances the theoretical understanding of categories and categorization by integrating
macro and micro perspectives on categorization, an approach that has been missing in
prior category studies (Vergne & Wry, 2014). In particular, by identifying
complementary views from both the sociological and the cognitive and social
psychological perspectives, this dissertation makes the novel claim that organizations can
influence the categorization process by external audiences by introducing the notion of
strategic categorization. This approach is in sharp contrast to previous studies that are
140

based on the sociological perspective of categorization in that it no longer considers the
categorization process as entirely exogenous and it argues that organizations can actively
shape their categorization. In doing so, this dissertation answers recent calls for a closer
examination of strategic categorization (Durand & Paolella, 2013; Vergne & Wry, 2014)
and extends this line of work by revealing the enabling conditions of strategic
categorization.
Second, this study contributes to category studies by considering inter-category
linkages, that is, by integrating the vertical structure of categories into the horizontal
structure of categories that has been the main focus of studies based on the sociological
perspective. In doing so, this dissertation reinvigorates interest in the vertical category
structure and category inclusiveness (Wry & Lounsbury, 2011; Wry, Lounsbury, &
Jennings, 2013). This shift to a more balanced view that includes both the vertical and
horizontal structure of categories also enables examination of more subtle but systematic
ways in which organizations can influence their categorization by external audiences, as
illustrated in the second essay. In particular, I suggest and empirically show that
organizations can strategically manage their self-categorization by taking on a broader or
narrower identity along the vertical category structure or a more or less focused identity
along the horizontal category structure, depending on their audiences and prevailing logic
in the market.
Third, this research adds nuance to category studies by examining the role of
heterogeneous audiences. In particular, this study advances understanding of the effect of
audience heterogeneity on strategic categorization by demonstrating that audiences with
different levels of knowledge evaluate the same self-categorization strategies differently.
141

Thus, the current study proposes a bilateral approach to understanding categorization that
includes the categorical sensegiving of organizations and the categorical sensemaking of
audiences.
Fourth, this study contributes to category studies by suggesting another dimension
that may affect the effect of strategic categorization, that is, the prevailing logic that
influences audience’s perception and evaluations. This research therefore holds that
strategic categorization does not occur in a vacuum; instead the institutional environment
and dominant logic serve “as a repository of legitimacy resources that can be pursued
strategically by organizations through symbolic management” (Lamertz & Martens,
2007, p. 3).
To conclude, I believe that the notion of strategic categorization carries
considerable potential to advance category studies by shifting the focus to how
categorization is a co-creation process among organizations and audiences (and
potentially other market actors), who engage in categorical sensegiving and categorical
sensemaking. Moreover, this dissertation suggests that categorization is better understood
by incorporating the role of audiences and the dominant logic that governs the meaning
of categories. In doing so, however, my research does not deny the disciplining role of
categories and the potential disadvantage of spanning multiple categories, as have been
found in prior studies, but it argues that another side that influences categorization also
needs to be considered. While the institutional environment may limit the range of
strategic categorization (Zuckerman, 2000), those organizations that are able to pull off
strategic categorization, which may require certain social skills (Fligstein, 1997), will
likely be the ones to gain legitimacy and favorability from external audiences. My hope is
142

that this study fuels emerging ideas on examining strategic categorization and paves the
way for future research that extends the notion of strategic categorization.
143

REFERENCES
Aerts, W., & Cormier, D. (2009). Media legitimacy and corporate environmental
communication. Accounting, Organizations and Society, 34(1), 1–27.
Aggarwal, R. (2003). Allocation of initial public offerings and flipping activity. Journal
of Financial Economics, 68(1), 111–135.
Aggarwal, R. K., Krigman, L., & Womack, K. L. (2002). Strategic IPO underpricing,
information momentum, and lockup expiration selling. Journal of Financial
Economics, 66(1), 105–137.
Aggarwal, R., Prabhala, N. R., & Puri, M. (2002). Institutional allocation in initial public
offerings: Empirical evidence. Journal of Finance, 57(3), 1421–1442.
Albert, S., & Whetten, D. A. (1985). Organizational identity. Research in Organizational
Behavior, 7, 263–295.
Arnold, T., Fishe, R. P. H., & North, D.(2010). The effects of ambiguous information on
initial and subsequent IPO returns. Financial Management, 39(4), 1497–1519.
Arthurs, J. D., Busenitz, L. W., Hoskisson, R. E., & Johnson, R. A. (2009). Signaling and
initial public offerings: The use and impact of the lockup period. Journal of
Business Venturing, 24(4), 360–372.
Arthurs, J. D., Hoskisson, R. E., Busenitz, L. W., & Johnson, R. A. (2008). Managerial
agents watching other agents: Multiple agency conflicts regarding underpricing in
IPO firms. Academy of Management Journal, 51(2), 277–294.
Ashforth, B. E., & Humphrey, R. H. (1997). The ubiquity and potency of labeling in
organizations. Organization Science, 8(1), 43–58.
144

Barber, B. M., & Odean, T. (2008). All that glitters: The effect of attention and news on
the buying behavior of individual and institutional investors. Review of Financial
Studies, 21(2), 785-818.
Bartov, E., Mohanram, P., & Seethamraju, C. (2002). Valuation of Internet stocks: An
IPO perspective. Journal of Accounting Research, 40(2), 321–346.
Baumeister, R. F., & Hutton, D. G. (1987). Self-presentation theory: Self-construction
and audience pleasing. In B. Mullen & G. R. Goethals (Eds.), Theories of group
behavior (pp. 71–87). New York, NY: Springer.
Beatty, R. P. (1989). Auditor reputation and the pricing of initial public offerings.
Accounting Review, 64(4), 693–709.
Beatty, R. P., & Ritter, J. R. (1986). Investment banking, reputation, and the underpricing
of initial public offerings. Journal of Financial Economics, 15(1-2), 213–232.
Benner, M. (2007). The incumbent discount: Stock market categories and response to
radical technological change. Academy of Management Review, 32(3), 703–720.
Bhabra, H. S., & Pettway, R. H. (2003). IPO prospectus information and subsequent
performance. Financial Review, 38(3), 369-397.
Bhattacharya, N., Demers, E., & Joos, P. (2010). The relevance of accounting
information in a stock market bubble: Evidence from Internet IPOs. Journal of
Business Finance & Accounting, 37(3-4), 291–321.
Bhattacharya, U., Galpin, N., Ray, R., & Yu, X. (2009). The role of the media in the
Internet IPO bubble. Journal of Financial and Quantitative Analysis, 44(3), 657–
682.
145

Brau, J. C., & Fawcett, S. E. (2006). Initial public offerings: An analysis of theory and
practice. Journal of Finance, 61(1), 399–436.
Bruton, G. D., Chahine, S., & Filatotchev, I. (2009). Founders, private equity investors,
and underpricing in entrepreneurial IPOs. Entrepreneurship Theory and Practice,
33(4), 909–928.
Bushee, B. J. (1998). The influence of institutional investors on myopic R&D investment
behavior. Accounting Review, 73(3), 305–333.
Bushee, B. J. (2001). Do institutional investors prefer near-term earnings over long-run
value? Contemporary Accounting Research, 18(2), 207–246.
Bushee, B. J., & Goodman, T. H. (2007). Which institutional investors trade based on
private information about earnings and returns? Journal of Accounting Research,
45(2), 289–321.
Bushee, B. J., & Noe, C. F. (2000). Corporate disclosure practices, institutional investors,
and stock return volatility. Journal of Accounting Research, 38, 171–202.
Carter, R. B., Dark, F. H., & Singh, A. K. (1998). Underwriter reputation, initial returns,
and the long-run performance of IPO stocks. Journal of Finance, 53(1), 285–311.
Carter, R., & Manaster, S. (1990). Initial public offerings and underwriter reputation.
Journal of Finance, 45(4), 1045–1067.
Certo, S. T. (2003). Influencing initial public offering investors with prestige: Signaling
with board structures. Academy of Management Review, 28(3), 432–446.
Certo, S. T., Covin, J. G., Daily, C. M., & Dalton, D. R. (2001). Wealth and the effects of
founder management among IPO-stage new ventures. Strategic Management
Journal, 22(6-7), 641–658.
146

Certo, S. T., Holcomb, T. R., & Holmes, R. M. (2009). IPO research in management and
entrepreneurship: Moving the agenda forward. Journal of Management, 35(6),
1340 –1378.
Chahine, S., & Goergen, M. (2011). VC board representation and performance of U.S.
IPOs. Journal of Business Finance & Accounting, 38(3-4), 413–445.
Chemmanur, T. J., & He, J. (2011). IPO waves, product market competition, and the
going public decision: Theory and evidence. Journal of Financial Economics,
101(2), 382–412.
Clark, S. M., Gioia, D. A., Ketchen, D. J., & Thomas, J. B. (2010). Transitional identity
as a facilitator of organizational identity change during a merger. Administrative
Science Quarterly, 55(3), 397–438.
Cliff, M. T., & Denis, D. J. (2004). Do initial public offering firms purchase analyst
coverage with underpricing? Journal of Finance, 59(6), 2871–2901.
Cohen, R. B., Gompers, P. A., & Vuolteenaho, T. (2002). Who underreacts to cash-flow
news? Evidence from trading between individuals and institutions. (Working
Paper No. 8793). Retrieved from National Bureau of Economic Research website:
http:// www.nber.org/papers/w8793
Colaco, H. M., De Cesari, A., & Hegde, S. P. (2014). Retail investor sentiment and IPO
valuation. Paper presented at the 22
nd
European Financial Management
Association Meetings, Reading, UK.
Cook, D. O., Kieschnick, R., & Van Ness, R. A. (2006). On the marketing of IPOs.
Journal of Financial Economics, 82(1), 35–61.
147

Cooper, M. J., Dimitrov, O., & Rau, P. R. (2001). A Rose.com by any other name.
Journal of Finance, 56(6), 2371–2388.
Cooper, M. J., Khorana, A., Osobov, I., Patel, A., & Rau, P. R. (2005). Managerial
actions in response to a market downturn: valuation effects of name changes in
the dot.com decline. Journal of Corporate Finance, 11(1-2), 319–335.
Cooper, M., & Rau, P. R. (2003). The Dotcom premium: Rational valuation or irrational
exuberance? In J. McCahery & L. D. R. Renneboog (Eds.), Venture capital
contracting and the valuation of high technology firms (pp. 297-317). Oxford:
Oxford University Press.
Corley, K. G., & Gioia, D. A. (2004). Identity ambiguity and change in the wake of a
corporate spin-off. Administrative Science Quarterly, 49(2), 173–208.
Creed, W. E. D., Scully, M. A., & Austin, J. R. (2002). Clothes make the person? The
tailoring of legitimating accounts and the social construction of identity.
Organization Science, 13(5), 475–496.
Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention. Journal of Finance, 66(5),
1461–1499.
Daily, C. M., Certo, S. T., Dalton, D. R., & Roengpitya, R. (2003). IPO underpricing: A
meta-analysis and research synthesis. Entrepreneurship Theory and Practice,
27(3), 271–295.
Dalziel, T., White, R. E., & Arthurs, J. D. (2011). Principal costs in initial public
offerings. Journal of Management Studies, 48(6), 1346–1364.
148

Deephouse, D. L. (2000). Media reputation as a strategic resource: An integration of
mass communication and resource-based theories. Journal of Management, 26(6),
1091–1112.
Demers, E., & Lev, B. (2001). A rude awakening: Internet shakeout in 2000. Review of
Accounting Studies, 6(2-3), 331–359.
Demers, E., & Lewellen, K. (2003). The marketing role of IPOs: Evidence from Internet
stocks. Journal of Financial Economics, 68, 413-437.
Depken II, C. A., & Zhang, Y. (2010a). Adverse selection and reputation in a world of
cheap talk. Quarterly Review of Economics and Finance, 50(4), 548–558.
Derrien, F. (2005). IPO pricing in “Hot” market conditions: Who leaves money on the
table? Journal of Finance, 60(1), 487–521.
DiMaggio, P. 1988. Interest and agency in institutional theory. In L. Zucker (Ed.),
Institutional patterns and organizations: Culture and environment (pp. 3–22).
Cambridge, MA: Ballinger.
DuCharme, L., Rajgopal, S., & Sefcik, S. (2001). Why was Internet IPO underpricing so
severe? Working paper. Retrieved from http://ssrn.com/abstract=285986
Durand, R., & Paolella, L. (2013). Category stretching: Reorienting research on
categories in strategy, entrepreneurship, and organization theory. Journal of
Management Studies, 50(6), 1100–1123.
Durand, R., Rao, H., & Monin, P. (2007). Code and conduct in French cuisine: Impact of
code changes on external evaluations. Strategic Management Journal, 28(5), 455–
472.
149

Eisenberg, E. M. (1984). Ambiguity as strategy in organizational communication.
Communication Monographs, 51(3), 227–242.
Eisenhardt, K. M., & Schoonhoven, C. B. (1990). Organizational growth: Linking
founding team, strategy, environment, and growth among U.S. semiconductor
ventures, 1978-1988. Administrative Science Quarterly, 35(3), 504–529.
Elsbach, K. D. (1994). Managing organizational legitimacy in the California cattle
industry: The construction and effectiveness of verbal accounts. Administrative
Science Quarterly, 39(1), 57–88.
Elsbach, K. D., & Kramer, R. M. (1996). Members’ responses to organizational identity
threats: Encountering and countering the Business Week rankings. Administrative
Science Quarterly, 41(3), 442–476.
Elsbach, K. D., & Sutton, R. I. (1992). Acquiring organizational legitimacy through
illegitimate actions: A marriage of institutional and impression management
theories. Academy of Management Journal, 35(4), 699–738.
Elsbach, K. D., Sutton, R. I., & Principe, K. E. (1998). Averting expected challenges
through anticipatory impression management: A study of hospital billing.
Organization Science, 9(1), 68–86.
Entman, R. M. (1993). Framing: Toward clarification of a fractured paradigm. Journal of
Communication, 43(4), 51–58.
Fiedler, K., Bluemke, M., Friese, M., & Hofmann, W. (2003). On the different uses of
linguistic abstractness: From LIB to LEB and beyond. European Journal of Social
Psychology, 33(4), 441–453.
150

Field, L. C., & Lowry, M. (2009). Institutional versus individual investment in IPOs: The
importance of firm fundamentals. Journal of Financial and Quantitative Analysis,
44(3), 489–516.
Fiol, C. M. (1995). Corporate communications: Comparing executives’ private and public
statements. Academy of Management Journal, 38(2), 522–536.
Fiol, C. M. (2002). Capitalizing on paradox: The role of language in transforming
organizational identities. Organization Science, 13(6), 653–666.
Fiss, P. C., & Zajac, E. J. (2006). The symbolic management of strategic change:
Sensegiving via framing and decoupling. Academy of Management Journal,
49(6), 1173–1193.
Fligstein, N. (1997). Social skill and institutional theory. American Behavioral Scientist,
40(4), 397–405.
Foreman, P. O., Whetten, D. A., & Mackey, A. (2012). An identity-based view of
reputation, image, and legitimacy: Clarifications and distinctions among related
constructs. In T. G. Pollock & M. L. Barnett (Eds.), Oxford handbook of
corporate reputation (pp. 179-200). Oxford: Oxford University Press.
Foreman, P., & Whetten, D. A. (2012). The identity paradox and an expanded framework
of organizational identity. Proceedings of the New Frontiers in Management and
Organizational Cognition Conference. National University of Ireland Maynooth.
Gamson, W. A., Croteau, D., Hoynes, W., & Sasson, T. (1992). Media images and the
social construction of reality. Annual Review of Sociology, 18, 373–393.
Gioia, D. A., & Chittipeddi, K. (1991). Sensemaking and sensegiving in strategic change
initiation. Strategic Management Journal, 12(6), 433–448.
151

Gioia, D. A., Patvardhan, S. D., Hamilton, A. L., & Corley, K. G. (2013). Organizational
identity formation and change. Academy of Management Annals, 7(1), 123–192.
Gioia, D. A., Price, K. N., Hamilton, A. L., & Thomas, J. B. (2010). Forging an identity:
An insider-outsider study of processes involved in the formation of organizational
identity. Administrative Science Quarterly, 55(1), 1–46.
Gioia, D. A., Schultz, M., & Corley, K. G. (2000). Organizational identity, image, and
adaptive instability. Academy of Management Review, 25(1), 63–81.
Glynn, M. A. (2000). When cymbals become symbols: Conflict over organizational
identity within a symphony orchestra. Organization Science, 11(3), 285–298.
Glynn, M. A. (2008). Beyond constraint: How institutions enable identities. In R.
Greenwood, C. Oliver, R. Suddaby, & K. Sahlin (Eds.), SAGE handbook of
organizational institutionalism (pp. 413-430). London: Sage.
Glynn, M. A., & Navis, C. (2013). Categories, identities, and cultural classification:
Moving beyond a model of categorical constraint. Journal of Management
Studies, 50(6), 1124–1137.
Glynn, M. A., & Watkiss, L. (2012). Exploring cultural mechanisms of organizational
identity construction. In M. Schultz, S. Maguire, A. Langley, & H. Tsoukas
(Eds.), Constructing identity in and around organizations (pp. 63–88). Oxford:
Oxford University Press.
Goffman, E. (1959). The presentation of self in everyday life. New York, NY: Anchor.
Goffman, E. (1974). Frame analysis: An essay on the organization of experience.
Cambridge, MA: Harvard University Press.
152

Goldfarb, B., Kirsch, D., & Miller, D. A. (2007). Was there too little entry during the Dot
Com Era? Journal of Financial Economics, 86(1), 100–144.
Gollwitzer, P. M. (1986). Striving for specific identities: The social reality of self-
symbolizing. In R. F. Baumeister (Ed.), Public self and private self (pp. 143–159).
New York, NY: Springer.
Graffin, S. D., Carpenter, M. A., & Boivie, S. (2011). What’s all that (strategic) noise?
anticipatory impression management in CEO succession. Strategic Management
Journal, 32(7), 748–770.
Granqvist, N., Grodal, S., & Woolley, J. L. (2013). Hedging your bets: Explaining
executives’ market labeling strategies in nanotechnology. Organization Science,
24(2), 395–413.
Habib, M. A., & Ljungqvist, A. P. (2001). Underpricing and entrepreneurial wealth losses
in IPOs: theory and evidence. Review of Financial Studies, 14(2), 433–458.
Hanley, K. W., & Hoberg, G. (2010). The information content of IPO prospectuses.
Review of Financial Studies, 23(7), 2821 –2864.
Hannan, M. T., Baron, J. N., Hsu, G., & Koçak, Ö. (2006). Organizational identities and
the hazard of change. Industrial and Corporate Change, 15(5), 755–784.
Hannan, M. T., Pólos, L., & Carroll, G. R. (2007). Logics of organization theory:
Audiences, codes, and ecologies. Princeton, N.J: Princeton University Press.
Heckman, J. J. (1979). Sample selection bias as a specification error. Econometrica,
47(1), 153–161.
Helwege, J., & Liang, N. (2004). Initial public offerings in hot and cold markets. Journal
of Financial and Quantitative Analysis, 39(3), 541–569.
153

Higgins, M. C., & Gulati, R. (2003). Getting off to a good start: The effects of upper
echelon affiliations on underwriter prestige. Organization Science, 14(3), 244–
263.
Higgins, M. C., & Gulati, R. (2006). Stacking the deck: The effects of top management
backgrounds on investor decisions. Strategic Management Journal, 27(1), 1–25.
Higson, C., & Briginshaw, J. (2000). Valuing Internet business. Business Strategy
Review, 11(1), 10–20.
Hirsch, P. M., & Lounsbury, M. (1997). Ending the family quarrel: Toward a
reconciliation of “old” and “new” institutionalisms. American Behavioral
Scientist, 40(4), 406–418.
Hirschey, M., Richardson, V. J., & Scholz, S. (2000). Stock-price effects of Internet buy-
sell recommendations: The Motley Fool case. Financial Review, 35(2), 147–174.
Hodgkinson, G. P., & Johnson, G. (1994). Exploring the mental models of competitive
strategists: The case for a processual approach. Journal of Management Studies,
31(4), 525–552.
Hogg, M. A., & Terry, D. J. (2000). Social identity and self-categorization processes in
organizational contexts. Academy of Management Review, 25(1), 121–140.
Hogg, M. A., Terry, D. J., & White, K. M. (1995). A tale of two theories: A critical
comparison of identity theory with social identity theory. Social Psychology
Quarterly, 58(4), 255–269.
Holtgraves, T. (2010). Social psychology and language: Words, utterances, and
conversations. In S. T. Fiske, D. T. Gilbert, & G. Lindzey (Eds.), Handbook of
social psychology (Vol. 2, pp. 1386-1422). Hoboken, NJ: John Wiley & Sons.
154

Hornsey, M. J. (2008). Social identity theory and self–categorization theory: A historical
review. Social and Personality Psychology Compass, 2(1), 204–222.
Hsu, G. (2006). Jacks of all trades and masters of none: Audiences’ reactions to spanning
genres in feature film production. Administrative Science Quarterly, 51(3), 420–
450.
Hsu, G., & Grodal, S. (2014). Category taken-for-grantedness as a strategic opportunity:
The case of light cigarettes, 1964-1993. Academy of Management Annual
Meetings Best Papers Proceedings, Academy of Management, Philadephia, PA.
Hsu, G., & Hannan, M. T. (2005). Identities, genres, and organizational forms.
Organization Science, 16(5), 474–490.
Hsu, G., Hannan, M. T., & Koçak, Ö. (2009). Multiple category memberships in markets:
An integrative theory and two empirical tests. American Sociological Review,
74(1), 150 –169.
Husick, G. C., Arrington, J. M., & Rosati, W. S. G. (1998). The initial public offering: A
practical guide for executives (1st ed.). New York, NY: Bowne & Co.
Ibbotson, R. G., Sindelar, J. L., & Ritter, J. R. (1994). The market’s problems with the
pricing of initial public offerings. Journal of Applied Corporate Finance, 7(1),
66–74.
Jain, B. A., Jayaraman, N., & Kini, O. (2008). The path-to-profitability of Internet IPO
firms. Journal of Business Venturing, 23(2), 165–194.
Jang, W.-Y. (2007). Media exposure or media hype: Evidence from initial public offering
stocks in Taiwan. Journal of Media Economics, 20(4), 259–287.
155

Jensen, M,., Kim, B. K., & Kim, H. (2011). The importance of status in markets: A
market identityperspective. In J. L. Pearce (Ed.), Status in management and
organizations (pp. 87-117). Cambridge, UK: Cambridge University Press.
Jensen, M. (2010). Legitimizing illegitimacy: How creating market identity legitimizes
illegitimate products. In G. Hsu, G. Negro, & Ö. Koçak (Eds.), Categories in
markets: Origins and evolution (Research in the sociology of organizations series,
Vol. 31, pp. 39–80). Bingley, UK: Emerald Group.
Jiang, L., & Li, G. (2013). Investor sentiment and IPO pricing during pre-market and
aftermarket periods: Evidence from Hong Kong. Pacific-Basin Finance Journal,
23, 65–82.
Jones, E. E. (1990). Interpersonal perception. New York, NY: W. H. Freeman & Co.
Kennedy, M. T. (2008). Getting counted: Markets, media, and reality. American
Sociological Review, 73(2), 270–295.
Kennedy, M. T., & Fiss, P. C. (2013). An ontological turn in categories research: From
standards of legitimacy to evidence of actuality. Journal of Management Studies,
50(6), 1138–1154.
Kennedy, M. T., Lo, J., & Lounsbury, M. (2010). Category currency: Meaning change
and the dynamics of market categories. In G. Hsu, G. Negro, & Ö. Koçak (Eds.),
Categories in markets: Origins and evolution (Research in the sociology of
organizations, Vol. 31; pp. 369-397). Bingley, UK: Emerald Group.
Kiefer, K. (2013). Predicting and examining links between IPO hype, managerial
expectations, and firm outcomes (Doctoral dissertation). Retrieved from ProQuest
Dissertations and Theses. (Accession No. 3561987)
156

Kim, B. K., & Jensen, M. (2011). How product order affects market identity: Repertoire
ordering in the U.S. opera market. Administrative Science Quarterly, 56(2), 238–
256.
Kinder, D. R. (1996). Divided by color: Racial politics and democratic ideals. Chicago,
IL: University of Chicago Press.
King, B. G., & Whetten, D. A. (2008). Rethinking the relationship between reputation
and legitimacy: A social actor conceptualization. Corporate Reputation Review,
11(3), 192–207.
King, B. G., Felin, T., & Whetten, D. A. (2010). Finding the organization in
organizational theory: A meta-theory of the organization as a social actor.
Organization Science, 21(1), 290–305.
Kovács, B., & Hannan, M. T. (2010). The consequences of category spanning depend on
contrast. In In G. Hsu, G. Negro, & Ö. Koçak (Eds.), Categories in markets:
Origins and evolution (Research in the sociology of organizations, Vol. 31, pp.
175-201). Bingley, UK: Emerald Group.
Krigman, L., Shaw, W. H., & Womack, K. L. (1999). The persistence of IPO mispricing
and the predictive power of flipping. Journal of Finance, 54(3), 1015–1044.
Kuperman, J. C. (2003). Using cognitive schema theory in the development of public
relations strategy: Exploring the case of firms and financial analysts following
acquisition announcements. Journal of Public Relations Research, 15(2), 117–
150.
157

Lamertz, K., Heugens, P. P. M. A. R., & Calmet, L. (2005). The configuration of
organizational images among firms in the Canadian beer brewing industry.
Journal of Management Studies, 42(4), 817–843.
Lamertz, K., & Martens, M. L. (2007). Shaping the symbolism of entrepreneurial forms:
A network study of image homogeneity among IPO firms. Proceedings of the
Administrative Sciences Association of Canada (ASAC). Retrieved from
http://luxor.acadiau.ca/library/ASAC/v28/22/22_35.pdf
Leary, M. R., & Kowalski, R. M. (1990). Impression management: A literature review
and two-component model. Psychological Bulletin, 107(1), 34 –47.
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(8), 793–804.
Leone, A. J., Rock, S., & Willenborg, M. (2007). Disclosure of intended use of proceeds
and underpricing in initial public offerings. Journal of Accounting Research,
45(1), 111–153.
Leung, M. D. (2014). Dilettante or Renaissance person? How the order of job
experiences affects hiring in an external labor market. American Sociological
Review, 79(1), 136–158.
Leung, M. D., & Sharkey, A. J. (2014). Out of sight, out of mind? Evidence of perceptual
factors in the multiple-category discount. Organization Science, 25(1), 171-184.
Ljungqvist, A. (2007). IPO underpricing. In B. E. Eckbo (ed.), Handbook of corporate
finance (Vol. 1, pp. 375-422). Amsterdam: North Holland.
Ljungqvist, A., & Wilhelm, W. J. (2005). Does prospect theory explain IPO market
behavior? Journal of Finance, 60(4), 1759–1790.
158

Ljungqvist, A., & Wilhelm, W. J. (2003). IPO pricing in the dot-com bubble. Journal of
Finance, 58(2), 723–752.
Long, J. S. (1997). Regression models for categorical and limited dependent variables.
Thousand Oaks, CA: Sage.
Loughran, T. (2002). The changing nature of the initial public offering market. Journal of
Psychology and Financial Markets, 3(1), 23–28.
Loughran, T., & Ritter, J. R. (2004). Why has IPO underpricing changed over time?
Financial Management, 33(3), 5–37.
Loughran, T., & Ritter, J. R. (2002). Why don’t issuers get upset about leaving money on
the table in IPOs? Review of Financial Studies, 15(2), 413–444.
Lounsbury, M., & Rao, H. (2004). Sources of durability and change in market
classifications: A study of the reconstitution of product categories in the
American mutual fund industry, 1944-1985. Social Forces, 82(3), 969–999.
Markman, A. B., & Ross, B. H. (2003). Category use and category learning.
Psychological Bulletin, 129(4), 592–613.
Martens, M. L., Jennings, J. E., & Jennings, P. D. (2007). Do the stories they tell get
them the money they need? The role of entrepreneurial narratives in resource
acquisition. Academy of Management Journal, 50(5), 1107-1132.
McFarland, D., & Pals, H. (2005). Motives and contexts of identity change: A case for
network effects. Social Psychology Quarterly, 68(4), 289–315.
McKendrick, D. G., Jaffee, J., Carroll, G. R., & Khessina, O. M. (2003). In the bud? Disk
array producers as a (possibly) emergent organizational form. Administrative
Science Quarterly, 48(1), 60–93.
159

Meyer, J. W., & Rowan, B. (1977). Institutionalized organizations: Formal structure as
myth and ceremony. American Journal of Sociology, 83(2), 340–363.
Michaely, R., & Shaw, W. H. (1994). The pricing of initial public offerings: tests of
adverse-selection and signaling theories. Review of Financial Studies, 7(2), 279–
319.
Murphy, G. (2004). The big book of concepts. Cambridge, MA.: Bradford.
Murphy, G. L., & Lassaline, M. E. (1997). Hierarchical structure in concepts and the
basic level of categorization. In K. Lamberts & D. R. Shanks (Eds.), Knowledge,
concepts and categories (pp. 93–131). Cambridge, MA: MIT Press.
Nagel, S. (2005). Short sales, institutional investors and the cross-section of stock returns.
Journal of Financial Economics, 78(2), 277–309.
Navis, C., & Glynn, M. A. (2010). How new market categories emerge: Temporal
dynamics of legitimacy, identity, and entrepreneurship in satellite radio, 1990-
2005. Administrative Science Quarterly, 55(3), 439–471.
Navis, C., & Glynn, M. A. (2011). Legitimate distinctiveness and the entrepreneurial
identity: Influence on investor judgments of new venture plausibility. Academy of
Management Review, 36(3), 479–499.
Negro, G., Hannan, M. T., & Rao, H. (2010). Categorical contrast and audience appeal:
Niche width and critical success in winemaking. Industrial and Corporate
Change, 19(5), 1397 –1425.
Negro, G., Hannan, M. T., & Rao, H. (2011). Category reinterpretation and defection:
Modernism and tradition in Italian winemaking. Organization Science, 22(6),
1449-1463.
160

Negro, G., Koçak, Ö., & Hsu, G. (2010). Research on categories in the sociology of
organizations. In G. Hsu, G. Negro, & Ö. Koçak (Eds.), Categories in markets:
Origins and evolution (Research in the sociology of organizations, Vol. 31, pp. 3-
35). Bingley, UK: Emerald Group.
Nelson, T. (2003). The persistence of founder influence: Management, ownership, and
performance effects at initial public offering. Strategic Management Journal,
24(8), 707–724.
Ofek, E., & Richardson, M. (2002). The valuation and market rationality of Internet stock
prices. Oxford Review of Economic Policy, 18(3), 265–287.
Ofek, E., & Richardson, M. (2003). Dotcom mania: The rise and fall of Internet stock
prices. Journal of Finance, 58(3), 1113–1138.
Oliver, C. (1991). Strategic responses to institutional processes. Academy of Management
Review, 16(1), 145–179.
Padgett, J. F., & Ansell, C. K. (1993). Robust action and the rise of the Medici, 1400-
1434. American Journal of Sociology, 98(6), 1259–1319.
Phillips, D. J., & Zuckerman, E. (2001). Middle-status conformity: Theoretical
restatement and empirical demonstration in two markets. American Journal of
Sociology, 107(2), 379–429.
Podolny, J. M. (1993). A status-based model of market competition. American Journal of
Sociology, 98(4), 829 –872.
Pollock, T. G. (2004). The benefits and costs of underwriters’ social capital in the U.S.
initial public offerings market. Strategic Organization, 2(4), 357 –388.
161

Pollock, T. G., Chen, G., Jackson, E. M., & Hambrick, D. C. (2010). How much prestige
is enough? Assessing the value of multiple types of high-status affiliates for
young firms. Journal of Business Venturing, 25(1), 6–23.
Pollock, T. G., & Gulati, R. (2007). Standing out from the crowd: The visibility-
enhancing effects of IPO-related signals on alliance formation by entrepreneurial
firms. Strategic Organization, 5(4), 339 –372.
Pollock, T. G., & Rindova, V. P. (2003). Media legitimation effects in the market for
initial public offerings. Academy of Management Journal, 46(5), 631–642.
Pólos, L., Hannan, M. T., & Carroll, G. R. (2002). Foundations of a theory of social
forms. Industrial and Corporate Change, 11(1), 85–115.
Pontikes, E. G. (2012). Two sides of the same coin: How ambiguous classification affects
multiple audiences’ evaluations. Administrative Science Quarterly, 57(1), 81–118.
Porac, J. F., & Rosa, J. A. (1996). Rivalry, industry models, and the cognitive
embeddedness of the comparable firm. Advances in Strategic Management
Research, 13, 363–388.
Porac, J. F., & Thomas, H. (1990). Taxonomic mental models in competitor definition.
Academy of Management Review, 15(2), 224–240.
Porac, J. F., & Thomas, H. (1994). Cognitive categorization and subjective rivalry among
retailers in a small city. Journal of Applied Psychology, 79(1), 54–66.
Porac, J. F., Thomas, H., & Baden-Fuller, C. (1989). Competitive groups as cognitive
communities: The case of Scottish knitwear manufacturers. Journal of
Management Studies, 26(4), 397–416.
162

Porac, J. F., Thomas, H., Wilson, F., Paton, D., & Kanfer, A. (1995). Rivalry and the
industry model of Scottish knitwear producers. Administrative Science Quarterly,
40(2), 203–227.
Porac, J. F., Wade, J. B., & Pollock, T. G. (1999). Industry categories and the politics of
the comparable firm in CEO compensation. Administrative Science Quarterly,
44(1), 112–144.
Pratt, M. G., Rockmann, K. W., & Kaufmann, J. B. (2006). Constructing professional
identity: The role of work and identity learning cycles in the customization of
identity among medical residents. Academy of Management Journal, 49(2), 235–
262.
Raffaelli, R. (2013). Identity and institutional change in a mature field: The re-
emergence of the Swiss watchmaking industry, 1970-2008 (Doctoral dissertation).
Retrieved from ProQuest Dissertations and Theses (Accession No. 3592891)
Rao, H., Monin, P., & Durand, R. (2005). Border crossing: Bricolage and the erosion of
categorical boundaries in French gastronomy. American Sociological Review,
70(6), 968–991.
Ravasi, D., & van Rekom, J. (2003). Key issues in organizational identity and
identification theory. Corporate Reputation Review, 6(2), 118–132.
Reynolds, K. J., Turner, J. C., & Haslam, S. A. (2003). Social identity and self-
categorization theories’ contribution to understanding identification, salience and
diversity in teams and organizations. In J. Polzer (Ed.), Identity issues in groups
(Research on managing groups and teams, Vol. 5, pp. 279–304). Oxford: Elsevier
Science.
163

Rhee, E. Y., & Fiss, P. (2014). Framing controversial actions: Regulatory focus, source
credibility, and stock market reaction to poison pill adoption. Academy of
Management Journal. Forthcoming. Retrieved from
http://amj.aom.org/content/early/2014/03/26/amj.2012.0686.abstract
Rindova, V., Dalpiaz, E., & Ravasi, D. (2011). A cultural quest: A study of
organizational use of new cultural resources in strategy formation. Organization
Science, 22(2), 413–431.
Ritter, J. R. (1991). The long-run performance of initial public offerings. Journal of
Finance, 46(1), 3–27.
Ritter, J. R., & Welch, I. (2002). A review of IPO activity, pricing, and allocations.
Journal of Finance, 57(4), 1795–1828.
Roberts, L. M. (2005). Changing faces: Professional image construction in diverse
organizational settings. Academy of Management Review, 30(4), 685–711.
Rosa, J. A., Judson, K. M., & Porac, J. F. (2005). On the sociocognitive dynamics
between categories and product models in mature markets. Journal of Business
Research, 58(1), 62–69.
Rosch, E. (1978). Principles of categorization. In E. Rosch & B. B. Lloyd (Eds.),
Cognition and categorization (pp. 27–48). Hillsdale, NJ: Lawrence Erlbaum.
Rosch, E., Mervis, C. B., Gray, W. D., Johnson, D. M., & Boyes-Braem, P. (1976). Basic
objects in natural categories. Cognitive Psychology, 8(3), 382–439.
Ruef, M., & Patterson, K. (2009). Credit and classification: The impact of industry
boundaries in nineteenth-century America. Administrative Science Quarterly,
54(3), 486–520.
164

Sabherwal, S., Sarkar, S. K., & Zhang, Y. (2008). Online talk: does it matter? Managerial
Finance, 34(6), 423–436.
Santos, F. M., & Eisenhardt, K. M. (2009). Constructing markets and shaping boundaries:
Entrepreneurial agency in nascent fields. Academy of Management Journal, 52(4),
643-671.
Scheufele, D. A. (1999). Framing as a theory of media effects. Journal of
Communication, 49(1), 103–122.
Schneider, D. J. (1981). Tactical self-presentations: Toward a broader conception. In J. T.
Tedeschi (Ed.), Impression management theory and social psychological research
(pp. 23–40). New York, NY: Academic Press.
Schrand, C. M., & Verrecchia, R. E. (2005). Information disclosure and adverse selection
explanations for IPO underpricing. Working paper. Retrieved from
http://ssrn.com/abstract=316824
Schultz, P., & Zaman, M. (2001). Do the individuals closest to Internet firms believe they
are overvalued. Journal of Financial Economics, 59(3), 347–381.
Sharkey, A. (2014). Categories and organizational status: The role of industry status in
the response to organizational deviance. American Journal of Sociology, 119(5),
1380-1433.
Sherman, A. E., & Titman, S. (2002). Building the IPO order book: underpricing and
participation limits with costly information. Journal of Financial Economics,
65(1), 3–29.
Shiller, R. J. (2000). Measuring bubble expectations and investor confidence. Journal of
Psychology and Financial Markets, 1(1), 49–60.
165

Smith, E. B. (2011). Identities as lenses: How organizational identity affects audiences’
evaluation of organizational performance. Administrative Science Quarterly,
56(1), 61–94.
Snow, D. A., & Anderson, L. (1987). Identity work among the homeless: The verbal
construction and avowal of personal identities. American Journal of Sociology,
92(6), 1336–1371.
Snow, D. A., Rochford, E. B., Worden, S. K., & Benford, R. D. (1986). Frame alignment
processes, micromobilization, and movement participation. American
Sociological Review, 51(4), 464–481.
Soltes, E. (2009). News dissemination and the impact of the business press (Doctoral
dissertation). Retrieved from ProQuest Dissertations and Theses (Accession No.
3362309)
Starbuck, W. H., & Milliken, F. J. (1988). Executives’ perceptual filters: What they
notice and how they make sense. In D. Hambrick (Ed.), The executive effect:
Concepts and methods for studying top managers (pp. 35-65). Greenwich, CT:
JAI Press.
Stigliani, I., & Elsbach, K. D. (2012). How category labels affect organizational identity
formation in emerging disciplines: The case of “service design.” Paper presented
at the 72
nd
Annual Meeting of the Academy of Management, Boston, MA.
Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches.
Academy of Management Review, 20(3), 571–610.
Suddaby, R., & Greenwood, R. (2005). Rhetorical strategies of legitimacy.
Administrative Science Quarterly, 50(1), 35–67.
166

Taboada, M. (2004). The genre structure of bulletin board messages. Text Technology,
13(2), 55-82.
Tajfel, H., Billig, M. G., Bundy, R. P., & Flament, C. (1971). Social categorization and
intergroup behaviour. European Journal of Social Psychology, 1(2), 149–178.
Thornton, P. H., Ocasio, W., & Lounsbury, M. (2012). The institutional logics
perspective: A new approach to culture, structure and process. Oxford: Oxford
University Press.
Tripsas, M. (2009). Technology, identity, and inertia through the lens of “The digital
photography company.” Organization Science, 20(2), 441–460.
Tumarkin, R. (2002). Internet message board activity and market efficiency: A case study
of the Internet service sector using Ragingbull.com. Financial Markets,
Institutions & Instruments, 11(4), 313–335.
Tumarkin, R., & Whitelaw, R. F. (2001). News or noise? Internet postings and stock
prices. Financial Analysts Journal, 57(3), 41–51.
Turner, J. C. (1985). Social categorization and the self-concept: A social cognitive theory
of group behavior. In E. J. Lawler (Ed.), Advances in group processes: Theory
and research (Vol. 2, pp. 77-122). Greenwich, CT: JAI Press.
Turner, J. C. (1999). Current issues in research on social identity and self-categorization
theories. In N. Ellemers, R. Spears & B. Doosje (Eds.), Social identity: Context,
commitment, content (pp. 6-34). Cambridge: Blackwell.
Tyllström, A. (2013). Legitimacy for sale : Constructing a market for PR consultancy.
Retrieved from http://www.diva-portal.org/smash/record.jsf?pid=diva2:618279
167

Vergne, J.-P. (2012). Stigmatized categories and public disapproval of organizations: A
mixed-methods study of the global arms industry, 1996–2007. Academy of
Management Journal, 55(5), 1027–1052.
Vergne, J.-P., & Wry, T. (2014). Categorizing categorization research: Review,
integration, and future directions. Journal of Management Studies, 51(1), 56–94.
Waguespack, D. M., & Sorenson, O. (2011). The ratings game: Asymmetry in
classification. Organization Science, 22(3), 541–553.
Watson, T. J. (2008). Managing identity: Identity work, personal predicaments and
structural circumstances. Organization, 15(1), 121–143.
Weber, K., Heinze, K, & DeSoucey, M. (2008). Forage for thought: Mobilizing codes for
the market for grass-fed meat and dairy products. Administrative Science
Quarterly, 53(3), 529-567.
Whetten, D. A. (2006). Albert and Whetten revisited: Strengthening the concept of
organizational identity. Journal of Management Inquiry, 15(3), 219–234.
Whetten, D. A., & Mackey, A. (2002). A social actor conception of organizational
identity and its implications for the study of organizational reputation. Business &
Society, 41(4), 393–414.
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a
direct test for heteroskedasticity. Econometrica, 48(4), 817-838.
Wry, T., & Lounsbury, M. (2013). Contextualizing the categorical imperative: Category
linkages, technology focus, and resource acquisition in nanotechnology
entrepreneurship. Journal of Business Venturing, 28, 117–133.
168

Wry, T., Lounsbury, M., & Glynn, M. A. (2011). Legitimating nascent collective
identities: Coordinating cultural entrepreneurship. Organization Science, 22(2),
449–463.
Wry, T., Lounsbury, M., & Jennings, P. D. (2013). Hybrid vigor: Securing venture
capital by spanning categories in nanotechnology. Academy of Management
Journal. Forthcoming. Retrieved from
http://amj.aom.org/content/early/2013/11/25/amj.2011.0588.abstract
Wu, G. A. (2012). The effect of going public on innovative productivity and exploratory
search. Organization Science, 23(4), 928–950.
Zhao, E. Y., Ishihara, M., & Lounsbury, M. (2013). Overcoming the illegitimacy
discount: Cultural entrepreneurship in the U.S. feature film industry. Organization
Studies, 34(12), 1747–1776.
Zott, C., & Huy, Q. N. (2007). How entrepreneurs use symbolic management to acquire
resources. Administrative Science Quarterly, 52(1), 70-105.
Zuckerman, E. W. (1999). The categorical imperative: Securities analysts and the
illegitimacy discount. American Journal of Sociology, 104(5), 1398–1438.
Zuckerman, E. W. (2000). Focusing the corporate product: Securities analysts and de-
diversification. Administrative Science Quarterly, 45(3), 591–619.
Zuckerman, E. W. (2004). Structural incoherence and stock market activity. American
Sociological Review, 69(3), 405–432.
169

Zuckerman, E. W., Kim, T., Ukanwa, K., & Rittmann, J. von. (2003). Robust identities or
nonentities? Typecasting in the feature ‐film labor market. American Journal of
Sociology, 108(5), 1018–1073.

Abstract (if available)

Abstract This dissertation proposes the notion of strategic categorization and explores how organizations can strategically influence the categorization process of external audiences. Extant studies on categorization have shown that organizations that do not fit into an external audiences’ category structure are devalued. These studies, however, have not examined the role of organizations in influencing their categorization and thus have failed to develop an understanding of the categorization process that encompasses both the organization’s categorical sensegiving and audience’s categorical sensemaking. This dissertation helps to fill this gap by building on micro and macro perspectives of categorization and insights from the literature on organizational identity and identity management to argue that organizations can influence the categorization process of external audiences by engaging in self-categorization strategies. The first essay develops a theoretical framework for understanding the concept of and the process by which organizations can engage in strategic categorization. In particular, it argues that category studies need to investigate insights drawn from the vertical structure of categories in addition to the horizontal structure of categories that has been the focus of prior studies. The second essay empirically examines the effect of strategic categorization on audience’s evaluations. The results based on firms that had gone through the initial public offering (IPO) process demonstrate that organizations can manage the degree of category inclusiveness and range of category spanning to influence potential investors’ evaluation and that the effectiveness of such strategic categorization depends on the level of audience knowledge and the prevailing logic of valuation. Specifically, while the overall results suggest that changing category inclusiveness to take on a broader identity and changing category spanning to create a more focused identity are positively evaluated by IPO investors, they also show that institutional investors are influenced more by reducing the number of categories spanned, and retail investors are influenced more by increasing the degree of category inclusiveness. This dissertation considerably advances the categorization literature by revealing the role of organizational agency in the categorization process and ways in which organizations can engage in strategic categorization based on both vertical and horizontal structures of categories.

Linked assets

University of Southern California Dissertations and Theses

Conceptually similar

PDF

The structure of strategic communication: theory, measurement, and effects

PDF

Three essays on young entrepreneurial firms

PDF

Empirical essays on relationships between alliance experience and firm capability development

PDF

Empirical essays on alliances and innovation in the biopharmaceutical industry

PDF

Staying ahead of the digital tsunami: strategy, innovation and change in public media organizations

PDF

How do acquirers govern the deal-making process? Three essays on U.S. mergers and acquisitions 1994 – 2017

PDF

Essays on service systems

PDF

Community structure as collective identity construction and resource search

PDF

Essays on commercial media and advertising

PDF

Strategic audience partitioning: antecedents and consequences

PDF

Essays on bounded rationality and revenue management

PDF

The new news: vision, structure, and the digital myth in online journalism

PDF

The effects of a customer's comparative processing with positive and negative information on product choice

PDF

Essays on consumer product evaluation and online shopping intermediaries

PDF

How organizations adapt during EBP implementation

PDF

Essays on information, incentives and operational strategies

PDF

Essays on understanding consumer contribution behaviors in the context of crowdfunding

PDF

Essays on the luxury fashion market

PDF

Governance networks: internal governance structure, boundary setting and effectiveness

PDF

That's just what this country needs: another film that's a flop at the flicks: a PR perspective on the success of home-grown films at the Australian box office

Asset Metadata

Creator Rhee, Eunice Yunjin (author)

Core Title Essays on strategic categorization

School Marshall School of Business

Degree Doctor of Philosophy

Degree Program Business Administration

Publication Date 10/10/2014

Defense Date 09/08/2014

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag categories,category inclusiveness,initial public offering,IPO,labels,OAI-PMH Harvest,strategic categorization

Format application/pdf (imt)

Language English

Contributor Electronically uploaded by the author (provenance)

Advisor Fiss, Peer C. (committee chair), Monge, Peter R. (committee member), Rajagopalan, Nandini (committee member), Zhu, Feng (committee member)

Creator Email erhee@usc.edu,yunjin.rhee@gmail.com

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c3-489529

Unique identifier UC11287068

Identifier etd-RheeEunice-3006.pdf (filename),usctheses-c3-489529 (legacy record id)

Legacy Identifier etd-RheeEunice-3006.pdf

Dmrecord 489529

Document Type Dissertation

Format application/pdf (imt)

Rights Rhee, Eunice Yunjin

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus MC 2810, 3434 South Grand Avenue, 2nd Floor, Los Angeles, California 90089-2810, USA