The categorical imperative: Securities analysts and the illegitimacy discount

This article explores the social processes that produce penalties for illeg itimate role performance. It is proposed that such penalties are illuminate d in markets that are significantly mediated by product critics. In particu lar, it is argued that failure to gain reviews by the critics who specializ e in a product's intended category reflects confusion over the product's id entity and that such illegitimacy should depress demand. The validity of th is 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 wa s discounted to the extent that the firm was not covered by the securities analysts who specialized in its industries. This analysis holds implication s for the study of role conformity in both market and nonmarket settings an d adds sociological insight to the recent "behavioral" critique of the prev ailing "efficient-market" perspective on capital markets.