Economic Policy Uncertainty,changes Of Corporate Strategies And Corporate Performances

The economic policy uncertainty has increased the operating risks of enterprises,and exacerbated the fluctuations in their performances.The information asymmetry and principalagent problems have become more prominent.However,the dynamic nature of the environment is an inevitable problem for the survival and development of enterprises.The uncertainty of the macro environment has increased the risks of the enterprises and caused great obstacles to the enterprises' forecasting and decision-making activities,and changing macro environment rapidly has also brought resources for the enterprises to survive.But the enterprises grow and develop in the process of exchanging resources with the outside environment which changes constantly.Therefore,how to use the resources in the environment and avoid the risks caused by economic policy uncertainty have become the key issues for the development of modern enterprises.Strategic management theory is gradually developed under the uncertain environment.The implication of "strategy" is the overall and long-term development direction and goal of an enterprise or organization in a certain period,which reflects the mission and value of an enterprise.Strategic management emphasizes overall,comprehensive,systematic,planned and long-term management.Through strategy formulation,implementation and adjustment,the enterprises conduct overall,comprehensive,and long-term planning,and manage the resources,including human,material,and financial resources.The application of strategic management theory in practice not only provides empirical evidences for the development of the theory,but also provide a new management model for the business activities of enterprises.After long-term practice,the strategic management theoretical system has been continuously improved and developed,and the strategic management levels of enterprises have been continuously improved.Facing the dynamic external environment,enterprises also have new thinking on the formulation and implementation of strategies.While managers emphasize the flexibility of corporate strategies,they are paying more and more attention to the possibility,feasibility,and risk of strategies during the implementation of strategic decisions,and more concerned about the timing and control of the changes of corporate strategies.On the one hand,according to the resource dependence theory,the enterprise is an open organization,and the implementation of various decisions requires supports from external environment.The change of corporate strategy is a major decision for an enterprise,and the implementation of the decision needs more resources given by the external environment.On the one hand,the changes of corporate strategies means that the companies' business management path will be broken,and internal resources will be reconfigured and managed.But the internal operation of every company has a certain path dependence,and employees' understanding of the changes of corporate strategies and their psychological responses will exert influences on implementation.The multiple obstacles in the implementation of the strategy have brought new risks to the enterprises.This shows that resource constraints and risks of the changes of corporate strategies are factors that cannot be ignored in the process of making decisions.Issues such as investment risks and resource crises caused by the uncertainty of economic policies directly affect the efficiency and effectiveness of strategic decisions,and thus have a significant impact on corporate performances.The changes of corporate strategies are not only related to the companies' overall business plans,but also transmit information to the outside world about corporates.Due to the information asymmetry problem,the levels of information asymmetry also fluctuate with the release of information such as the changes of corporate strategies in the enterprise.However,the market responses brought by the disclosure of decisions of changing strategies is directly reflected in the performance levels of the companies.Moreover,when the degree of economic policy uncertainty is high,the changes of corporate strategies and the external market environment pose double risks to enterprises,and their performance levels are more likely to be negatively affected.At the same time,due to the unstable economic situation,the market reaction is more sensitivity for management behaviors of enterprises,and the negative correlation between the changes of corporate strategies and the corporate performances is more significant.However,both the formulation and implementation of strategic decisions are closely related to the corporate governance and resource constraints.On the one hand,during the process of making corporate strategic decisions,the internal management team composed of the board of directors,the board of supervisors,and senior managers will have varying degrees of participation.The effectiveness of the internal governance mechanism and the levels of internal governance directly affect the rationality of the decisions.Under the "dual system" governance structure of the board of directors and the board of supervisors,both the consultation functions and supervisory functions of the board of directors should come into play,and function conflicts between the board of supervisors and independent directors must be coordinated.Corporate governance activities guarantee both the effectiveness and the economy of supervision,so as to improve the efficiency of supervision.On the other hand,the companies' own resource conditions have impacts on the formulation and implementation of strategic decisions.Adequate strategic resources can not only support the changes of strategies,but also ensure that the implementation of the new strategies achieves good economic benefits.Especially,when the degree of economic policy uncertainty increases,perfect internal governance and sufficient resources can reflect its advantages.It can be seen that the economic policy uncertainty and the resource conditions are the key considerations for strategic decisionmaking.This paper studies the relationship between the economic policy uncertainty,change of corporate strategy and company performance,which has certain practical significance.Based on theoretical analysis,this paper uses empirical research methods to test three levels of problems: one is the relationship between economic policy uncertainty and the changes of corporate strategies;the other is the relationship between the changes of corporate strategies and corporate performances;Finally,on the basis of the first two studies,the last one is the relationship between economic policy uncertainty,the changes of corporate strategies,and the corporate performances.In addition,this article introduces the internal governance mechanism and resource conditions to regulate the relevant relationships,which provides an empirical evidence for the formulation of reasonable strategic decisions.In the empirical research in this paper,the key variable,"the changes of corporate strategies",is measured by text analysis.Through capturing the information of strategies in the annual reports of listed companies,the degree of changes is measured by analyzing the textual similarity of the information of strategies.Quantifying the textual information of enterprises to obtain data of the changes of corporate strategies is a breakthrough in measurement of strategies in this article.Through empirical testing methods such as descriptive statistics and regression analysis,this article summarizes conclusions as follows:First,there is a significant negative correlation between the economic policy uncertainty and the degrees of the changes of corporate strategies.With the significant increase in the degree of economic policy uncertainty,corporate managers not only realize the increase in external risks,but also recognize the obstacles caused by the turbulent economic situation to the changes of corporate strategies,which bring about new risks.When the external environment is unstable,corporate decision makers tend to preserve corporates' strengths and develop steadily.Further research conclusions have also verified that managers are more sensitive to risks in companies with a higher level of governance,when the degree of uncertainty in economic policies increases.And managers are more inclined to implement strategies in a better economic situation to avoid the double impacts of external and internal risks.Therefore,internal governance and external risks have negative impacts on the changes of corporate strategies.Specifically,in the companies with a combination of chairman and general manager or a high proportion of independent directors,the levels of internal information asymmetry have declined,and the agency problems have been alleviated to a certain extent.With better understanding of the companies' true operating conditions,managers are more inclined to reduce the degrees of the changes of corporate strategies to ensure that the companies can pass through periods of high risk stably.In addition,in companies with a higher concentration of stock equity,major shareholders are more sensitive to the changes in external risks and corporate value.Moreover,shareholders are more concerned about the survival of the companies.When environmental risks are high,preserving corporations' strengths and maintaining stability are the primary goals of shareholders.Therefore,in the companies with the higher concentration of stock equity,the shareholders tend to develop steadily and prevent high-risk behaviors,therefore,the degrees of changes of corporate strategies in such enterprises are smaller.In addition,corporate financing constraints are also important considerations in strategic decisions,because sufficient resources are the prerequisites and guarantee for the changes of strategies.Among enterprises with higher financing constraints,the higher degree of uncertainty in economic policies will lead to a problem that internal and external resources are scarcer.Consequently,they are difficult to carry out strategies,and the trends of the changes of strategies become more stable.Second,there is a significant negative correlation between the degree of the changes of corporate strategies and corporate performances.In the first place,because strategy is the embodiment of corporate mission and vision,and is the overall plan for the long-term development of the enterprise,strategic decision-making is a major issue for a company.The information of changes of corporate strategies transmitted to the outside world will also have a significant impact on the market.Changing strategies sharply is likely to cause external investors,creditors and other stakeholders to form a negative impression of the enterprises as“unstable”.In the next place,because the changes in strategic decisions will bring huge fluctuations to the operation of the enterprises,the risks brought by the behavior of changing strategies itself will also reduce the performance levels of the enterprises.Finally,the changes of corporate strategies mean that companies need more new external resources to support their transformations.Due to changes in the paths of resource demands,the companies increase the levels of dependence on the environment,and their bargaining power in market competition will also be affected,which indirectly affects the performances.On this basis,this article further examines the interaction of internal governance and resource conditions on corporate performance.It is found that the better internal governance and sufficient cash holdings could alleviate the negative correlations between the changes of strategies and corporate performances.Specifically,in the companies with a combination of chairman and general manager or a high proportion of independent directors,due to the strengthening of internal supervision,the problems of asymmetry in internal information have been alleviated,and corporate strategic decisions have become more reasonable,which leads to relieving negative effects.In addition,increasing the shareholding ratio of the board of supervisors can closely link the reward of the board of supervisors with the value of the company,and encourage the board of supervisors to actively play its functions,which can reduce the adverse impacts of the changes of strategies.And the higher level of cash holdings can meet the resource requirements and reduce the risk caused by the changes of strategies,thereby mitigating the negative correlation between the changes of strategies and corporate performance.Third,when the degree of economic policy uncertainty is higher,the negative relationship between the degrees of changing strategies and the levels of corporate performances is more significant.Based on the analysis of the correlation between the changes of corporate strategies and corporate performances,when the degree of uncertainty in economic policy is higher,the resources required for the implementation of corporate strategies are more restricted,because of the fluctuation of the external environment which is more unfavorable to the developments of the enterprises.Because the restriction of resources is difficult to support the implementation of the new strategies successfully,it leads to a significant decline in performance levels.Conversely,when the degree of uncertainty in economic policies is low,even if the timing of the decisions of changing strategies is not appropriate or the pace of changing is too fast,the performance levels of the companies will not decrease significantly because of the better environment.Combining the internal governance of the companies,in the companies with a combination of chairman and general manager or a high proportion of independent directors,the board of directors has a better understanding of the companies' true operating conditions and independent directors with professional knowledge bring intellectual resources and external information.As a result,the negative correlation between the changes of strategies and corporate performance is mitigated.In addition,during periods of high economic policy uncertainty,the higher cash holdings are beneficial for companies to deal with the shocks of the external environments,and the role of mitigating the negative correlation between the changes of strategies and performance is also more obvious.However,regardless of the degree of uncertainty in economic policies,the incentives for the board of supervisors can alleviate the negative impacts of the changes of strategies.The innovations of this article are as follows:First,one of the innovations is the measurement method of changes of corporate strategies.This text captures the information of strategies from the annual reports of listed companies,and then obtains changes data by measuring the textual similarity of such information.The traditional measurement methods are mainly obtaining from the companies' financial data,but the financial data is lagging.Because the financial data of current period is the operating results of the companies after a year of strategies implementation,compared to the companies' annual report data of begging of the year,financial data is ex post data,and it is difficult to accurately measure the adjustment behaviors of enterprise management.Therefore,this paper can analyze the overall strategic dispositions and strategic plans of the enterprises more accurately through the textual analysis of the information of strategies in the annual reports.Compared with the previous researches,the data acquisition method in this paper is innovative,which overcome the lag of financial data to a certain extent.Second,this paper studies the impacts of external policy risks on corporate strategies from a macro-to-micro perspective,and analyzes an important motivation of corporate strategic decision-making — economic policy uncertainty,which enrich the literature from this perspective.The two dimensionalities of researches in this article are all from a macro-to-micro perspective: on the one hand,the uncertain macro environment has an impact on the behaviors of the enterprises,and the micro individuals--the enterprises adjust their behaviors to maintain the companies' competitiveness and performance levels based on the analysis and judgment of the external environment;on the other hand,under different degrees of economic policy uncertainty,the adjustment behaviors of the companies have different effects on long-term performances;and micro-individuals' own levels of internal governance and resource conditions lead to different individual characteristics of enterprises when they face the same macro environment.This article examines the regularities and consequences of the strategic decision-making from a macro-to-micro perspective.