54 Pages Posted: 2 Aug 2015 Last revised: 19 Jan 2016
Date Written: January 19, 2016
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: 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