One challenge of managing a public company lies in finding a balance between driving innovation and maximizing shareholder value. At the same time, you face another, often vexing constituency: securities analysts who dissect your every move.

Research from Carlson School Associate Professor Mary Benner suggests analysts can be more influential than previously believed, particularly in times of disruptive technological change. "The trigger for me was reading the about Kodak's demise and hearing analysts say the company was late to the digital party," she says. "I knew that wasn't true--Kodak made the first digital camera in 1991."

Along with University of Pennsylvania doctoral candidate Ram Ranganathan, Benner examined how analysts' comments affected companies in the photography, telecommunications, and newspaper industries, all of which were dealing with technology shifts over the last two decades. The pair collected mountains of information, including stock data, financial details, and analyst recommendations

One finding: those recommendations can have a negative effect. Their research cites this 1994 analyst comment on Kodak's forays into digital: "We are eager to see shareholders' reactions when they realize how much of their money is squandered on 'digital nonsense.'"

While not all of the analyses were so colorful, Benner did find well-defined trends. "First, as analysts became more negative, some firms retreated and cut their investments," she notes. "Second, firms that continued to invest announced share buybacks, which can mollify investors through a short-term share price boost.

"Responding to technological change is difficult internally," she adds. "You need to do things differently--hire new people, change the culture. But it's also important to understand this pressure from external stakeholders. That adds an additional constraint. As I continue to study this topic, I hope to be able to provide prescriptions and more information on companies that have successfully balanced internal challenges with external pressures."

"Offsetting Illegitimacy? How Pressures from Securities Analysts Influence
Incumbents in the Face of New Technologies" was published in the Academy of Management Journal, 55(1): 213-233. (2012)