Corporate Strategy, Conformism, and the Stock Market

106 Pages Posted: 2 Aug 2015 Last revised: 2 Apr 2018

See all articles by Thierry Foucault

Thierry Foucault

HEC Paris - Finance Department

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Multiple version iconThere are 3 versions of this paper

Date Written: March 29, 2018


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

JEL Classification: G31, D21, D83

Suggested Citation

Foucault, Thierry and Frésard, Laurent, Corporate Strategy, Conformism, and the Stock Market (March 29, 2018). HEC Paris Research Paper No. FIN-2015-1099, Available at SSRN: or

Thierry Foucault

HEC Paris - Finance Department ( email )

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Laurent Frésard (Contact Author)

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

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