To conform or be unique: exploring the influence of analysts on firms’ strategies

In this study, we examine the impact of analysts’ recommendations on a critical decision faced by firms: the choice between conformity and distinctiveness. Integrating perspectives from both the strategy school of thought, advocating for uniqueness, and institutional theory, emphasizing conformity for legitimacy, we argue that, following analyst downgrades, firms may shift towards strategic distinctiveness or conformity depending on contextual factors that shape their interpretation of those recommendations. We find that, in this situation, firms tend to adopt strategic distinctiveness, when led by a powerful CEO, have strong financial performance, are categorized by investors as a growth stock, and operate in highly competitive industries. Our study contributes to the literature by providing a contextual understanding of analysts’ impact on firm strategies. We also make a methodological contribution by devising a novel measure for strategic distinctiveness by employing topic modeling techniques on earnings call transcripts.