Standing out from the crowd: Dedicated institutional investors and strategy uniqueness

This paper examines the effect of dedicated institutional investors on firms' strategy uniqueness. We build on the uniqueness paradox where unique strategies are important drivers of economic rent, yet create an information problem whereby CEOs face discounts from the capital market, thus discouraging them from selecting unique strategies. We propose dedicated institutional investors as a partial remedy to the uniqueness paradox. Dedicated institutional investors invest in gaining private information about their investments, devote effort to understanding firms' strategies, and reduce capital market pressure. Thus, dedicated institutional investors can encourage CEOs to pursue more unique strategies. Our empirical results show the positive influence of dedicated institutional investors on strategic uniqueness, which is even stronger when firms operate in industries that are hard to value.