Corporate Strategy, Conformism, and the Stock Market

Thierry Foucault and Laurent Frésard
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Laurent Frésard : HEC Paris, Postal: College Park, MD 20742, United States

No 1099, HEC Research Papers Series from HEC Paris

Abstract: We show that when corporate managers rely on the stock market as a source information, they are more likely to follow common strategies because this behavior enhances the informativeness of stock prices about their growth opportunities. Thus, the stock market induces conformity in strategic choices. Our theory predicts that this effect should be weaker for public firms. Consistent with this prediction, we observe empirically that firms differentiate their products more after going public. In line with our model, this pattern is stronger when managers are better informed or when the stock prices of a firm's peers are less informative.

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: 62 pages
Date: 2015-07-31
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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 (2018)
Working Paper: Corporate Strategy, Conformism, and the Stock Market (2016)
Working Paper: Corporate Strategy, Conformism, and the Stock Market (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1099

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