Status, Linguistic Alignment, and Organizational Scope under Categorical Misfit

• In Event: Economic Sociology Section Roundtables
  In Refereed Roundtable (60 minute): Roundtable 8: Organizational Strategies

Abstract

How do firms adjust their organizational scope when their activities diverge from audiences’ categorical expectations? Prior research shows that categorical misfit often triggers penalties and pressures firms to retreat, yet firms do not respond uniformly. We argue that firms’ scope decisions—divestiture and diversification—depend on how categorical misfit is shaped by firms’ status and communicative alignment with evaluative audiences. While organizational status helps explain why some firms face less immediate pressure to conform, it does not account for how firms without such advantages navigate categorical scrutiny. We develop a framework that highlights linguistic alignment—the degree to which firms’ self-descriptive language resonates with audience evaluative structures—as a key factor shaping scope responses under categorical misfit. Using longitudinal data on publicly traded U.S. firms from 1998 to 2019, combining segment-level information, analyst coverage, and text-based measures of linguistic alignment derived from firms’ 10-K disclosures, we assess how categorical misfit interacts with organizational status and linguistic alignment to shape the likelihood that firms retreat from or expand their business domains. Our results suggest that both status and linguistic alignment independently weaken the pressure created by category misfit, reducing the likelihood of exit and increasing the likelihood of entry. Importantly, linguistic alignment is especially consequential for lower-status firms, helping them resist retreat and sustain or broaden their organizational scope. By examining how firms use language to navigate categorical misfit in their scope decisions, this study extends the category literature by highlighting communicative agency alongside structural determinants.

Authors

• Sang Won Han, Sungkyunkwan University

• Heewon Chae, University of Michigan