Offsetting illegitimacy: The influence of securities analysts on incumbents facing new technologies

We study how analysts' recommendations affect firms' strategies during radical technological shifts. Using a large sample longitudinal panel data study of three industries undergoing technological change, we find that analysts' recommendations trigger changes in strategic investments during periods of radical technological change. We also find that firms with continued high investments and negative analysts' recommendations are more likely to announce share repurchases, actions that may offset growing illegitimacy by signaling alignment with shareholders' interests. Settings of radical technological change provide a natural experiment for understanding how firms balance technological pressures for adaptation and institutional pressures for legitimacy.