A Signaling Approach to Exit Decisions

In the current study, we empirically examine the strategic dynamics of segment exit from a signaling perspective using an original data-set of high-tech ventures operating in the Korean systems integration (SI) industry. This paper posits that faced with a high level of uncertainty regarding the future fate of a market segment, a firm will search for signals that may guide its exit decision from rivals’ strategic actions in and around the segment. We argue that rivals’ strategic actions influence the focal firm’s exit decision by serving as signals about both the competitive pressure and attractiveness of the segment. We also suggest that the focal firm’s strategic responses to uncertainty-reducing signals stemming from rivals’ actions are far more complicated than usually suggested in the existing strategy literature. We predict that a firm activates various sorts of calculative rationality in its responses to signals, such as taking into consideration varying competitive threats of other firms to its own survival, making inferences about the attractiveness of a segment based on the performances of rivals operating in the segment, giving differing recency weights to actions of rivals with a decay discount depending on elapsed time since action, and adjusting its sensitivity to influences from rivals depending on its own performance. The results of our event history analysis of all segment exit events by 199 Korean SI ventures over sevenyear period from 2000 until 2006 strongly supported all four hypotheses of ours. General implications are discussed.