Corporate strategy uniqueness, analyst herding, and financing constraints

Abstract

This study is based on the premise that firms pursuing unique corporate strategies impose a high information cost on security analysts. A difficult information environment will foster analyst herding and lead to financing constraints for firms with unique corporate strategies. We find that corporate strategy uniqueness is positively related to analyst herding, which suggests that strategy uniqueness is associated with greater information asymmetry between corporate insiders and outsiders. Furthermore, we find that firms with more unique strategies have higher investment–cash flow sensitivity, indicating that strategy uniqueness makes it harder for firms to obtain external financing. Our findings contribute to research about the consequences of pursuing strategies that security analysts are unwilling or unable to value.