Thomas J. Zwirlein

Evaluating Strategic Investments: Complementing Discounted Cash Flow Analysis with Options Analysis

Abstract Innovative strategy making is the key to superior performance for most businesses today. However, it frequently must be conducted in the midst of unpredictable and even chaotic circumstances and processes. Moreover, it often is frustrated by dogmatic reliance on traditional approaches to financial evaluation. In this study, we explore both the managerial and conceptual shortcomings of the traditional approach to evaluating strategic investments through discounted cash flow (DCF) analysis. We then describe a complementary technique introduced to internal financial evaluation from securities valuation, options analysis. We integrate these techniques in a combined DCF/options analysis model that combines insights from both techniques of investment analysis. The result is a process for evaluating strategic investment opportunities that takes a dynamic perspective on the strategy-making process.

Shareholder Value and Investment Strategy Using the General Portfolio Model

Portfolio planning has been the subject of much debate, but little testing in strategic management. Building on the assumptions that relative ROA and sales growth are valid indicators of competitive position and industry attractiveness, this study examines whether an investment strategy that is consistent with prescriptions from the general portfolio model is associated with excess returns to shareholders. Evidence reported in this study indicates that this strategy is actually associated with subpar returns to shareholders. The implications of this finding for scholars and managers are discussed.

The structure of financial strategy: Patterns in financial decision making

A corporations financial strategy has substantial potential to influence shareholder value creation. Financial strategy is the product of the corporations investment, financing, and dividend decisions. The objective of this study is to demonstrate how corporations coordinate these decisions and how the resulting financial strategies are related to performance and other key operating characteristics. To accomplish this, we cluster S&P Industrial 400 firms on 2 measures of each of the three financial strategy decisions. A number of strategic and descriptive variables are also used to help in identifying and interpreting the clusters. We discuss the financial, strategic, and performance characteristics on the seven strategy archetypes that we find and offer suggestions for future research.

The Efficient Monitoring Role of Proxy Contests: An Empirical Analysis of Post-Contest Control Changes and Firm Performance

We present an empirical analysis of the subsequent disposition and share price performance of 142 firms involved in proxy contests for board seats in the period 1962-1986. We find evidence that proxy contests increase corporate efficiency through improved monitoring of firms, even in the absence of takeover-related control activity. Our results support the view that proxy contests are an effective managerial disciplinary mechanism in the absence of a takeover.