Stock Analysts vs. College Rankings

Over the past few years, I’ve read dozens of articles that look at the influence of stock analysts on firm behavior and performance. More recently, I’ve read a number of papers (mostly by Sauder and Espeland) on the effects of rankings on the behavior of undergraduate colleges and law schools. These two lines of research would seem to have a lot in common – both draw on organizational theory, both are being published in top, mainstream sociology journals, and both concern the power of external evaluations to affect organizational behavior. But, so far, I don’t think these two lines of work have been brought together very often. Granting that assumption, I wonder if the gap between the two can be explained by a choice of agents: the security analyst papers focus on the analysts, while the college rankings papers focus on the rankings themselves.

Here are two examples. Zuckerman (1999) discusses the penalty firms face when they fit into multiple categories. Here is part of the abstract:

This article explores the social processes that produce penalties for illegitimate role performance. It is proposed that such penalties are illuminated in markets that are significantly mediated by product critics. In particular, it is argued that failure to gain reviews by the critics who specialize in a product’s intended category reflects confusion over the product’s identity and that such illegitimacy should depress demand. The validity of this assertion is tested among public American firms in the stock market over the years 1985-94. It is shown that the stock price of an American firm was discounted to the extent that the firm was not covered by the securities analysts who specialized in its industries.

So here the active agents (in an almost semiotic sense) are product critics, specifically securities analysts.

Contrast that with Sauder and Espeland (2009), on how law schools changed their practices in response to the US News and World Report rankings system (again from the abstract):

This article demonstrates the value of Foucault’s conception of discipline for understanding organizational responses to rankings. Using a case study of law schools, we explain why rankings have permeated law schools so extensively and why these organizations have been unable to buffer these institutional pressures. Foucault’s depiction of two important processes, surveillance and normalization, show how rankings change perceptions of legal education through both coercive and seductive means. … Members’ tendency to internalize these pressures, to become self-disciplining, is also salient. Internalization is fostered by the anxiety that rankings produce, by their allure for the administrators who try to manipulate them, and by the resistance they provoke. Rankings are just one example of the public measures of performance that are becoming increasingly influential in many institutional environments, and understanding how organizations respond to these measures is a crucial task for scholars.

So here, instead of putting emphasis on critics or analysts, Sauder and Espeland focus on rankings and, more broadly, public measures as the influential actors.

I don’t really know what to make of this, or if my assertion that this difference generalizes to the rest of the two literatures. One obvious point would be to note that Sauder and Espeland’s work is much more influenced by science studies approaches, which tend to employ the concept of “actor” more broadly. While I don’t know that S&E would call themselves actor-network theorists, by focusing on quantification, commensuration, and etc. they are clearly much more in dialogue with that tradition than Zuckerman’s work. And yet, the two streams are clearly getting at many of the same dynamics. So, food for thought: how much does it matter if we talk about the power of rankings instead of rankers, or analysts instead of analyses? What do we miss with one focus as compared to the other?

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1 Comment

  1. joseossandon

     /  July 14, 2011

    Hi I have been trying to think in a similar line using Mackenzie instead of Zuckerman here (but is in spanish):
    http://estudiosdelaeconomia.wordpress.com/2010/12/08/heckman-y-la-performatividad-o-porque-la-sociologia-de-las-finanzas-puede-servir-a-la-sociologia-de-la-educacion/
    Considering later readings, perhaps even better could be a combination of Mackenzie’ work on the crisis and the role of risk ratings, combined with Karpik singularities, or Stark’s recent work on topten lists. all of them could be useful to think university markets, too, i think. best, jose.