An Empirical Study Of Strategic Options Value Affecting Vertical Integration Performance

As an important corporate-level strategy, vertical integration has always been attracting much attention from both empirical and theoretical communities. From the theoretical view, economists have done a lot of research concerning this problem from different prospective. Their achievements are shown by series of related theories. A lot of factors, including macroeconomic trends, uncertainties of market demands, relevancy of technology, industry competitive environment, industry life cycle, industrial concentration and specificity of assets etc., have been considered significant on affecting vertical integration behavior and performance.In the new century, facing more changeful external environment, corporate are bearing more risks when executing strategies. Traditional static strategy management is not sufficient to handle the challenges in the dynamic internal and external environment. Corporate needs to keep initiative and flexible. The uncertainty accompanying vertical integration allows the existence of strategic options, bringing value to the establishment of strategic options. Strategic options emphasize on the rights rather than the responsibilities that a company owns; they pay more attention to the opportunities rather than disadvantages that brought by the uncertainty,With all these backgrounds, this paper is aimed at applying strategic options, which is a new concept in strategic management, to the analysis of vertical integration performance. We hope to find out the correlation between strategic options value and vertical integration performance through the empirical test of listed companies.Combining theoretical analysis and empirical study, This paper performs a research on the influence of strategic options and vertical integration performance. The empirical test is based on the sample of 653 listed companies covering 20 industries.First of all, this paper systematically reviews relevant theories about strategic options and vertical integration. Then it illustrats the existence of strategic options in vertical integration, analyzes the forms of four types of options, and points out that the value of these four types of options are affected by different characteristics of industries, which affect the performance of corporate as well. It drives out four hypothesis of the influence of strategic options value on vertical integration performance. These hypothesis are separately tested through the empirical test.Bases on the analysis and research above, this paper comes to the conclusion that of all the four types of strategic options, switch options and growth options have positive influences on vertical integration performance, while quit options and defer options are not significantly correlated to vertical integration decision. In the end, this paper makes a thorough analysis and explanation of the results of the empirical study and gives some relevant suggestions to the practice of vertical integration.strategy.