Market performance and deviance from industry norms: (Mis)alignment of organizational risk and industry risk

Much of the attention in the risk literature focuses on organizational risk. This research argues that industry-level risk indirectly influences firm performance in addition to the direct effects of organizational risk. We contend industry-level risk norms influence market performance. Our general hypothesis is that when managers pursue strategies that deviate from industry risk norms, the firm's market performance will decline. We also test for the moderating effects of performance relative to targets and managerial ownership. The general hypothesis was supported for market risk and returns risk, but not for strategic risk. In addition, performance relative to target moderates this deviation-market performance relationship for market and returns risk. These findings have implications for the risk literature, particularly a firm's risk premium, and institutional theory, in terms of the tradeoff related to conformity to norms.