European Business Schools Librarian's Group

HEC Research Papers Series,
HEC Paris

No 1099: Corporate Strategy, Conformism, and the Stock Market

Thierry Foucault and Laurent Frésard
Additional contact information
Thierry Foucault: HEC Paris, Postal: 1 rue de la Libération, 78350 Jouy-en-Josas
Laurent Frésard: HEC Paris, Postal: College Park, MD 20742, United States

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

JEL-codes: D21; D83; G31

62 pages, July 31, 2015

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