Stock market undervaluation of resource redeployability

Stock market undervaluation of resource redeployability Research Summary: Stock market undervaluation of resources was often assumed to have strategic implications. Such undervaluation lets firms buy resources relatively cheaply, but it can also constrain resource deployment. This article shows that the option to redeploy a firm's resources to a new business can be undervalued in stock markets when investors face ambiguity about that option due to uniqueness of redeployment. The developed formal model derives conditions under which stock markets undervalue resources. Those conditions are summarized with an empirical operationalization that can be tested with a broad range of strategic implications. Besides, the model provides a more complete account of resource redeployability by demonstrating the redeployability paradox. The paradox highlights that some determinants of redeployability enhance undervaluation, while simultaneously increasing objective value of redeployable resources. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Strategic Management Journal Wiley

Stock market undervaluation of resource redeployability

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Publisher
Wiley
Copyright
Copyright © 2018 John Wiley & Sons, Ltd.
ISSN
0143-2095
eISSN
1097-0266
D.O.I.
10.1002/smj.2775
Publisher site
See Article on Publisher Site

Abstract

Research Summary: Stock market undervaluation of resources was often assumed to have strategic implications. Such undervaluation lets firms buy resources relatively cheaply, but it can also constrain resource deployment. This article shows that the option to redeploy a firm's resources to a new business can be undervalued in stock markets when investors face ambiguity about that option due to uniqueness of redeployment. The developed formal model derives conditions under which stock markets undervalue resources. Those conditions are summarized with an empirical operationalization that can be tested with a broad range of strategic implications. Besides, the model provides a more complete account of resource redeployability by demonstrating the redeployability paradox. The paradox highlights that some determinants of redeployability enhance undervaluation, while simultaneously increasing objective value of redeployable resources.

Journal

Strategic Management JournalWiley

Published: Jan 1, 2018

Keywords: ; ; ; ;

References

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