Corporate Strategy, Conformism, and the Stock Market

Thierry Foucault and Laurent Fresard

The Review of Financial Studies, 2019, vol. 32, issue 3, 905-950

Abstract: We show that product differentiation reduces the informativeness of a firm’s stock price (or its peers’ stock prices) about the value of its growth opportunities. This results in less efficient exercise of a firm’s growth options when managers rely on information in stock prices for their decisions. This informational cost of differentiation induces conformity in product market strategies and is larger for private firms. Hence, a firm should differentiate more after going public. We confirm this prediction empirically and show that the post-IPO increase in differentiation is stronger for firms with better informed managers or less informative peers’ stock prices.Received January 19, 2016; editorial decision May 8, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhy077 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Corporate Strategy, Conformism, and the Stock Market (2018)
Working Paper: Corporate Strategy, Conformism, and the Stock Market (2016)
Working Paper: Corporate Strategy, Conformism, and the Stock Market (2015)
Working Paper: Corporate Strategy, Conformism, and the Stock Market (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:32:y:2019:i:3:p:905-950.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().