Corporate Strategy, Conformism, and the Stock Market

54 Pages Posted: 2 Aug 2015 Last revised: 19 Jan 2016

Thierry Foucault

HEC Paris - Finance Department

Laurent Frésard

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 19, 2016

Abstract

We show that managers can raise firm value by imitating other public firms' strategies because imitation enhances their ability to obtain information from their own stock price or their peers' stock prices, which improves the efficiency of their investment decisions. This conformity effect is stronger for private firms' managers because they can learn information from stock prices only if they imitate public firms' strategies. In line with this prediction, we observe empirically that firms differentiate more after going public and that this pattern is stronger for firms with better informed managers or whose peers have less informative stock prices.

Keywords: Conformism, Product Differentiation, Managerial Learning, Peers, Informational efficiency

JEL Classification: G31, D21, D83

Suggested Citation

Foucault, Thierry and Frésard, Laurent, Corporate Strategy, Conformism, and the Stock Market (January 19, 2016). HEC Paris Research Paper No. FIN-2015-1099. Available at SSRN: https://ssrn.com/abstract=2638459 or http://dx.doi.org/10.2139/ssrn.2638459

Thierry Foucault

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
(33)139679569 (Phone)
(33)139677085 (Fax)

HOME PAGE: http://thierryfoucault.com/

Laurent Frésard (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

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