IDEAS home Printed from https://ideas.repec.org/p/ebg/heccah/1099.html

Corporate Strategy, Conformism, and the Stock Market

Author

Listed:
  • Foucault , Thierry

    (HEC Paris)

  • Frésard , Laurent

    (HEC Paris)

Abstract

We show that when corporate managers rely on the stock market as a source information, they are more likely to follow common strategies because this behavior enhances the informativeness of stock prices about their growth opportunities. Thus, the stock market induces conformity in strategic choices. Our theory predicts that this effect should be weaker for public firms. Consistent with this prediction, we observe empirically that firms differentiate their products more after going public. In line with our model, this pattern is stronger when managers are better informed or when the stock prices of a firm's peers are less informative.

Suggested Citation

  • Foucault , Thierry & Frésard , Laurent, 2015. "Corporate Strategy, Conformism, and the Stock Market," HEC Research Papers Series 1099, HEC Paris.
    • Handle: RePEc:ebg:heccah:1099
    as

    Download full text from publisher

    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2638459
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Borochin, Paul & Yang, Jie, 2017. "Options, equity risks, and the value of capital structure adjustments," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 150-178.
    3. Caio Machado & Ana Elisa Pereira, 2020. "Competing for Stock Market Feedback," Documentos de Trabajo 545, Instituto de Economia. Pontificia Universidad Católica de Chile..
    4. Itay Goldstein, 2023. "Information in Financial Markets and Its Real Effects," Review of Finance, European Finance Association, vol. 27(1), pages 1-32.
    5. Dow, James & Han, Jungsuk & Sangiorgi, Francesco, 2024. "The short-termism trap: Catering to informed investors with limited horizons," Journal of Financial Economics, Elsevier, vol. 159(C).
    6. Liu, Frank Hong & Norden, Lars & Spargoli, Fabrizio, 2020. "Does uniqueness in banking matter?," Journal of Banking & Finance, Elsevier, vol. 120(C).
    7. Jaspersen, Stefan, 2021. "Mutual Fund Bets on Market Power," CFR Working Papers 16-07, University of Cologne, Centre for Financial Research (CFR), revised 2021.
    8. Ghulam Hussain Khan Zaigham & Xiangning Wang & Haji Suleman Ali, 2019. "Causal Relation Between Stock Market Performance and Firm Investment in China: Mediating Role of Information Asymmetry," SAGE Open, , vol. 9(4), pages 21582440198, October.
    9. Xiong, Yan & Yang, Liyan, 2021. "Disclosure, competition, and learning from asset prices," Journal of Economic Theory, Elsevier, vol. 197(C).
    10. Paul Borochin & Jie Yang, 2016. "Options, Equity Risks, and the Value of Capital Structure Adjustments," Finance and Economics Discussion Series 2016-097, Board of Governors of the Federal Reserve System (U.S.).
    11. Caio Machado & Ana Elisa Pereira, 2023. "Optimal Capital Structure with Stock Market Feedback," Review of Finance, European Finance Association, vol. 27(4), pages 1329-1371.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebg:heccah:1099. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Antoine Haldemann The email address of this maintainer does not seem to be valid anymore. Please ask Antoine Haldemann to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/hecpafr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.