External control, corporate strategy, and firm performance in research‐intensive industries

External control, corporate strategy, and firm performance in research‐intensive industries This paper explores the proposition that the divergence of interest between managers and stockholders has implications for corporate strategy and firm profitability. Stockholders prefer strategies which maximize their wealth. Managers prefer strategies which maximize their utility. It is theorized that in research‐intensive industries, when stockholders dominate, innovation strategies are favored. When managers dominate, diversification strategies are favored. In addition, innovation is argued to be associated with greater firm profitability than diversification. This theory is tested on 94 Fortune 500 firms drawn from research‐intensive industries. The results largely confirm theoretical expectations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Strategic Management Journal Wiley

External control, corporate strategy, and firm performance in research‐intensive industries

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Publisher
Wiley
Copyright
Copyright © 1988 John Wiley & Sons, Ltd.
ISSN
0143-2095
eISSN
1097-0266
DOI
10.1002/smj.4250090605
Publisher site
See Article on Publisher Site

Abstract

This paper explores the proposition that the divergence of interest between managers and stockholders has implications for corporate strategy and firm profitability. Stockholders prefer strategies which maximize their wealth. Managers prefer strategies which maximize their utility. It is theorized that in research‐intensive industries, when stockholders dominate, innovation strategies are favored. When managers dominate, diversification strategies are favored. In addition, innovation is argued to be associated with greater firm profitability than diversification. This theory is tested on 94 Fortune 500 firms drawn from research‐intensive industries. The results largely confirm theoretical expectations.

Journal

Strategic Management JournalWiley

Published: Nov 1, 1988

References

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