Corporate Strategy, Analyst Coverage, and the Uniqueness Paradox

Lubomir P. Litov (), Patrick Moreton () and Todd Zenger ()
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Lubomir P. Litov: Eller College of Management, University of Arizona, Tucson, Arizona 85721
Patrick Moreton: Fuqua School of Business, Duke University, Durham, North Carolina 27708

Management Science, 2012, vol. 58, issue 10, 1797-1815

Abstract: In this paper, we argue that managers confront a paradox in selecting strategy. On one hand, capital markets systematically discount uniqueness in the strategy choices of firms. Uniqueness in strategy heightens the cost of collecting and analyzing information to evaluate a firm's future value. These greater costs in strategy evaluation discourage the collection and analysis of information regarding the firm, and result in a valuation discount. On the other hand, uniqueness in strategy is a necessary condition for creating economic rents and should, except for this information cost, be positively associated with firm value. We find empirical support for both propositions using a novel measure of strategy uniqueness in a firm panel data set between 1985 and 2007. This paper was accepted by Bruno Cassiman, business strategy.

Keywords: corporate strategy; analyst coverage; strategic uniqueness; diversification (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (56)

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