Corporate Strategy, Conformism, and the Stock Market

108 Pages Posted: 7 Aug 2018 Last revised: 13 Dec 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 28, 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 fi rm should differentiate more after going public. We con firm this prediction empirically and show that the post-IPO increase in differentiation is stronger for fi rms with better informed managers or less informative peers' 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 (March 28, 2018). Swiss Finance Institute Research Paper No. 18-51, 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
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CH-1211 Geneva 4

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