A causal model of linkages among strategy, structure, and performance using directed acyclic graphs: A manufacturing subset of the Fortune 500 industrials, 1990--1998

This research explored the causal relationships among strategies, corporate structure, and performance of the largest U.S. non-financial firms using directed acyclic graphs (DAGs). Corporate strategies and structure have been analyzed as major variables to influence corporate performance in management and organizational studies. However, their causal relationships in terms of which variables are leaders and followers, as well as the choices of variables to configure them, are controversial. Finding of causal relationships among strategic variables, structural variables, and corporate performance is beneficial to researchers as well as corporate managers. It provides guidance to researchers how to build a model in order to measure influences from one variable to the other, lowering the risk of drawing spurious conclusions. It also provides managers with information about how important variables would change when certain strategic decisions are made. Literatures from agency theory, transactional cost economics, and traditional strategic management perspective are used to suggest variables essential to analyze corporate performance. This study includes size and multi-organizational ownership hierarchy as variables to configure corporate structure. The variables to configure corporate strategies are unrelated and related diversification, ownership by institutional investors, debt, investment in R&D, and investment in advertisement.; The study finds that most of the variables classified as corporate strategy and corporate structure variables are either direct or indirect causes of corporate accounting performance. Generally, results supports the relational model such that corporate structure leads corporate strategy, and corporate strategy leads corporate performance. Ownership hierarchy structure, unrelated diversification, advertising expenses, and R&D intensity have direct causal influences on corporate accounting performance. Size and related diversification affected corporate accounting performance indirectly, both through ownership hierarchy structure. Theoretical causal relationships from agency theory are less supported than those from transaction cost economics and traditional strategic management perspective. Further this study suggests that, in general, good corporate performance in 1990s was mainly achieved by internal expansion through investment in R&D and advertisement, rather than external expansion of firms through unrelated diversification, related diversification, and expansion of ownership hierarchy.