The valuation implications of strategy in R&D-intensive industries
Abstract
Purpose
The purpose of this paper is to investigate the valuation impact of firm’s strategic choices in a setting of intangibles-rich industries.
Design/methodology/approach
The authors adopt the conceptual framework of Miles and Snow (1978, 2003), which identifies three viable types of firms based on their organizational strategy profiles: defenders, prospectors and analyzers. The authors use a replicable strategy score, whose scoring convention is based on rolling ratings of six ratios for the previous four years (Bentley et al., 2013), to distinguish between prospector and defender strategies.
Findings
The authors offer empirical evidence that supports the hypothesis that prospector strategies are positively associated with firm value in the industries of electronics and electrical equipment, pharmaceuticals and biotechnology and technology hardware and equipment. The authors do not find evidence to support such a relationship in the software and computer services sector.
Research limitations/implications
The results of this study have significant implications for researchers, who adopt a market-based accounting research framework to examine the characteristics, performance and valuation of firms with different strategic orientation.
Practical implications
The findings of this paper are useful to managers, who would like to pursue a value-adding strategy in dynamic industrial environments that are characterized by high levels of innovation, risk and growth.
Originality/value
Although previous studies have yielded mixed results with respect to the association between firm’s performance and prospector strategy, the authors identify a set of R&D-intensive industries, where the implementation of the prospector strategy adds significant value to the shareholders’ wealth.
Keywords
Acknowledgements
The paper has benefited substantially from the comments of two anonymous reviewers and the comments and advice of the Editor, Julia Mundy. The authors acknowledge the comments of participants at the 39th European Accounting Association Annual Congress, the 11th EIASM Interdisciplinary Workshop on Intangibles, Intellectual Capital, and Extra-Financial Information, and the 14th Hellenic Finance and Accounting Association Annual Conference. The authors gratefully acknowledge financial support from the Research Center of the Athens University of Economics and Business (RE: 2252, 2257 and 2459).
Citation
Ballas, A. and Demirakos, E. (2018), "The valuation implications of strategy in R&D-intensive industries", Journal of Applied Accounting Research, Vol. 19 No. 3, pp. 365-382. https://doi.org/10.1108/JAAR-11-2015-0096
Publisher
:Emerald Publishing Limited
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