Shareholder value and strategic action: A study of turnaround firms

This dissertation provides extensive empirical evidence--a large sample study over a long period--about the link between strategy and shareholder value. In contrast to the typical measure of shareholder value--stock price times the number of shares outstanding--this dissertation uses beta excess returns, which varies with stock price but controls for external factors. Strategy is measured using a set of strategic conduct variables from extant literature. Since strategy varies little over short periods, a particular class of strategic situations--turnarounds, in which strategic change is clearly evident--is the focus of this dissertation.; A model of growth, decline and turnaround is developed and tested using firms that declined for at least three years and turned around successfully between 1975 and 1990. Two control samples are used to test hypotheses on the cause of decline and hypotheses on the causes of turnaround. The findings supported previous research--decline was associated with unanticipated changes and turnaround was associated with strategic actions taken during the decline phase. Regarding hypotheses on the impact of strategy on shareholder value, only during decline was the link clearly observable. The last part of this dissertation tests hypotheses on differences in relative cash flow components across the turnaround, bankrupt, and non-declining firms and the impact of cash flow components on shareholder value across these different groups of firms during decline. Although the relative cash flow components of the turnaround firms differed from those of the non-declining firms and bankrupt firms, the impact of the relative cash flow components on shareholder value was not consistent.