Review of Financial Studies Vol. 32 No. 3 2019
Corporate Strategy, Conformism, and the Stock Market
Abstract
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.Received January 19, 2016; editorial decision May 8, 2018 by Editor Itay Goldstein.
- DOI
- 10.1093/rfs/hhy077
- Volume
- 32
- Issue
- 3
- Pages
- 905-950
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref