Corporate Strategy, Conformism, and the Stock Market

Thierry Foucault and Laurent Frésard
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Laurent Frésard: University of Lugano; Swiss Finance Institute; University of Maryland - Robert H. Smith School of Business

No 18-51, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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 fi rm should differentiate more after going public. We con firm this prediction empirically and show that the post-IPO increase in differentiation is stronger for fi rms with better informed managers or less informative peers' stock prices.

Keywords: Conformism; Product Differentiation; Managerial Learning; Peers; Informational efficiency (search for similar items in EconPapers)
JEL-codes: D21 D83 G31 (search for similar items in EconPapers)
Pages: 108 pages
Date: 2018-08
New Economics Papers: this item is included in nep-bec and nep-cfn
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Corporate Strategy, Conformism, and the Stock Market (2019)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1851

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