Corporate Strategy and Wealth Creation: An Application of Neural Network Analysis

Abstract

Corporate managers, business consultants, stock analysts, and academic researchers have long maintained that the strategic decisions of managers have a direct influence on firm performance. Although societal and economic trends, industry characteristics, and chance all influence performance, the strategic decisions made by managers are believed to play a decisive role in shaping financial performance. Even so, researchers investigating this relationship have reported largely ambiguous results (Rumelt, 1974; Ramanujam and Varadarajan, 1989; Hoskisson and Hitt, 1990; Robbins and Pearce, 1992; Markides and Williamson, 1994; Barker, 1994). Furthermore, attempts by analysts to forecast future financial performance by scrutinizing current strategy decisions have been plagued with problems. Can firm financial performance be predicted with accuracy from the corporate strategy decisions of the executive management team?