The Measurement Of Strategic Change And Its Impact On Performance From The Perspective Of Resource Allocation

Strategy plays a key role in the process of creation of a firm’s value, and also determines the success of a firm and its valuation in capital markets. In a hyper competitive environment, both firms’internal resources and external environment changes over time, firms must change their strategy accordingly. There few important issues in strategy studies such as how firms change strategy according to the changing environment, how firms decide the timing, direction and degree of strategy change, and how strategy change will effect firm performance. My study uses a sample of listing companies from Chinese A stock market. My study based on the definition and measurement of strategy change and the uncertainty of change-performance relationship. There are three major research questions in my study:first, the relationship between firm performance and strategy change:degree, path, or there is a dynamic relation; second, how the constrains effect the relationship between firm performance and strategy change in the process of decision making and implementation of strategy change; third, the functional relationship between firm performance and strategy change and between firm performance and performance variation after actual change happened.For the three major research questions in my study, my framework is built a path based on the resources allocation, strategic change and firm performance relation. I model the measurement of strategy change using a four-dimensional resources allocation vector and analysis change-performance relation using GMM and Threshold Regression Model based on dynamic panel data.Firstly, I select advertising intensity, plant and equipment newness, non-production overhead, and financial leverage as the key resource allocation elements following the study by Finkelstein and Hambrick (1990). I use a sample of 987 listing companies in Chinese A stock market from 44 industries whose data range from 2001 to 2013. Using a vector which contains the four key elements, I measure strategy change based on the resources allocation which approximates the angle, amplitude and total amount of strategic changes by the angle variation, norm variation and radians variation of the vector respectively.Secondly, I incorporate the measurements of strategy change with GMM based on dynamic panel data to study change-performance relation. Empirical results suggest that there is an invert "U" relationship between the angle, amplitude and total amount of change and performance, and the impact of total amount of change and change in structure last for two years. I also find that there is a stronger relationship between change and firm performance for ST companies than others. Furthermore, variation of performance are affect by not only firms’past performance but also their amplitude, total amount of change and change in structure, while, at the same time, the amplitude, total amount of change and change in structure are also affect by past performance.Thirdly, I analyses the non-linearly impact of change on firm performance under different constrains and demonstrates empirically the existence of Threshold Effect between change and firm performance using the Panel Data Threshold Regression Model in Hansen (1999,2000). I find that there is a non-linear relationship between change and firm performance when past performance various as well as when resource allocation various, and the threshold effect does exist between change and firm performance when size various.Finally, according to the model of strategic conduct based on the concept of strategic fit in Andersen et. la., (2007), I present a theoretical model of change-performance and a model of strategic conduct based on the concept of strategic change. Furthermore, I study the functional relationship between change and performance as well as the risk-return coefficient through numerical simulation and empirical analysis.Overall, based on the resource based theory, my study measures strategy change from the resource allocation perspective of a firm. Using the measurements, my study is able to study the change-performance relation systematically and empirically and to find the functional relation between change and performance. To do so, my study adds new evidence to the literature, and also provide theoretical evidence to managers or investors whenever they need to make decisions related to strategic change or valuation of a particular firm.