Corporate Strategy, Conformism, and the Stock Market

Thierry Foucault and Laurent Frrsard

Working Papers from HAL

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.

Keywords: Conformism; Product Differentiation; Managerial Learning; Peers; Stock Price Informativeness (search for similar items in EconPapers)
Date: 2015-08-02
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Related works:
Journal Article: Corporate Strategy, Conformism, and the Stock Market (2019)
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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:hal:wpaper:hal-02002755

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