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Corporate Strategy, Analyst Coverage, and the Uniqueness Paradox

Author

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  • Lubomir P. Litov

    (Eller College of Management, University of Arizona, Tucson, Arizona 85721)

  • Patrick Moreton

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Todd R. Zenger

    (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

Abstract

In this paper, we argue that managers confront a paradox in selecting strategy. On one hand, capital markets systematically discount uniqueness in the strategy choices of firms. Uniqueness in strategy heightens the cost of collecting and analyzing information to evaluate a firm's future value. These greater costs in strategy evaluation discourage the collection and analysis of information regarding the firm, and result in a valuation discount. On the other hand, uniqueness in strategy is a necessary condition for creating economic rents and should, except for this information cost, be positively associated with firm value. We find empirical support for both propositions using a novel measure of strategy uniqueness in a firm panel data set between 1985 and 2007. This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Lubomir P. Litov & Patrick Moreton & Todd R. Zenger, 2012. "Corporate Strategy, Analyst Coverage, and the Uniqueness Paradox," Management Science, INFORMS, vol. 58(10), pages 1797-1815, October.
    • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:10:p:1797-1815
    DOI: 10.1287/mnsc.1120.1530
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