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Title: Corporate Strategy, Conformism, and the Stock Market

Author(s): Thierry Foucault and Laurent Frésard

Publication Date: January 2016

Keyword(s): Managerial Learning, Peers, Product Differentiation and Stock price Informativeness

Programme Area(s): Financial Economics and Industrial Organization

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.

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Bibliographic Reference

Foucault, T and Frésard, L. 2016. 'Corporate Strategy, Conformism, and the Stock Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11073