The Categorical Imperative vs. Linguistic Alignment: Organizations Use Language to Modify Environmental Expectations

Analysis on how organizations and the environment interact starts with the common assumption that mutual understanding and agreement are beneficial for organizations. The process of building such an agreement and the consequences of agreement versus disagreement are an active research topic and one that calls for additional research. The authors add evidence to this debate by performing a replication of the initial findings on the costs of category spanning. They also introduce the concept of linguistic alignment, defined as the intersection of organizational self-description and environmental understanding of the organization. The authors specify a measurement strategy for linguistic alignment and test the implications of linguistic alignment of U.S. public firms and securities analysts over the last two decades with a novel embedding alignment technique. They find that firm values are reduced when spanning categories, but linguistic alignment is a better predictor of firm value. In addition to this direct effect, linguistic alignment reduces the value reduction of firms with a multi-industry presence. This means that organizations that can manage their self-presentation to achieve linguistic alignment with external audience analysts to obtain better evaluations.