Corporate-level strategy and firm performance: evidence from China

Abstract

Purpose The research interest in this paper is primarily in the question of how important changes in corporate-level strategy affect firm performance. This paper aims to explore the relationship between strategic change and performance, illustrate the frequency patterns of major strategic changes and assess the multi-period performance implications of major strategic changes. Design/methodology/approach This paper defines strategic change by combining contingency theory and resource-based view. The panel data from 1973 listed firms of China’s A-share market that reported data between the years 2004 and 2015 are selected as the sample to test various relationships and effects between performance and strategic change. Findings This paper empirically shows that change in strategies benefits subsequent firm performance, specifically resources re-allocation among existing businesses will result better performance, and successful firms exhibit less strategic change than those performing poorly. It also demonstrates that, in China, the effects of a major strategic change on subsequent performance peaks after one year, but starts to decline thereafter. Originality/value This paper explores whether changes, especially important changes, in corporate-level strategy influence subsequent firm performance, and illustrates how frequently a listed firm in China makes decisions about corporate-level strategy. It contributes empirically to the literature by providing one of the first empirical evidence on assessing the effects of important changes in corporate-level strategy on performance.

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