Firm Information Environment & The Uniqueness Challenge of Corporate Strategy

Abstract

This paper examines how a firm’s information environment influences the uniqueness of its corporate strategy. Because unique strategies impose a greater information burden on investors to assess, they can be discounted on the market, leading managers to compromise on the uniqueness of their strategies. While richer information environments can allow investors to more accurately value–and thus, firms to adopt–more unique strategies, they can also signal the strategy’s value to competitors and immediately invite imitation or retaliation, which can erode the expected competitive advantage. Therefore, I examine the challenge faced by managers in adopting unique strategies and in response to changes in their firm’s information environment. I find that better information environments increase strategy uniqueness, but not for complex firms and not when competition is intense. Exploiting a plausibly exogenous shock to the information environment that accounts for its potentially endogenous nature provides further evidence of the effect.