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The impact of the financial crisis in corporate growth strategies

The impact of the financial crisis in corporate growth strategies

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Published by DavidValente

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Categories:Business/Law, Finance
Published by: DavidValente on Jan 15, 2010
Copyright:Attribution Non-commercial

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04/17/2011

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THE REACTION OF CORPORATE GROWTHSTRATEGIES TO ENVIRONMENTAL SYSTEMS CHANGE
David R. Valente
Project coordinated by Prof. Dr. Martin Carree, Head of the StrategyDepartment at the Maastricht School of Business and Economics
THE CASE OF THE 2008-09 GLOBAL FINANCIAL CRISIS
December 2009
Presentation developed as an unofficial complement to the formal written document
 
David R. Valente 
14-01-102
 A crisis considered by many as the worst since the Great Depression, and the first at the scale of a globalized world, reached in 2008 the world financial systems and the global economy. Two key consequences are likely to come out of this crisis: (1)new regulatory systems; and (2) new stakeholder perceptions on managerial practice. We evaluate in this study the impactthat a business environmental change is likely to have in corporate growth strategies. We find that the debt cost, the firmstock valuation, the investor ownership structure, the executive remuneration incentives and the shareholder risk aversionare all factors that significantly impact the preference of firms to choose acquisitive growth. We find also through a survey of 107 global top executives that the debt cost, the long term executive remuneration schemes and the shareholder riskaversion are likely to increase in the “new normal” business environment. As a conclusion, we find that the movements inthese three indicators are significant to explain an expected long term increase in the preference for firms to choose highorganic growth strategies in detriment of acquisitions. The conclusions are likely to originate new benchmarks for financialinvestors, so that the evaluation on public firms´s performance may be adjusted to a new set of indicators. Finding thecorrect firm positioning in the start of a new business environment is key. We hope to provide in this study a fundamentalbasis to support new benchmarks and managerial sight over the long term firm competitiveness and performance.
Executive Summary
 
David R. Valente 
14-01-103
Executive Summary
1.We are convinced that the recent wave of acquisitions in the last decade (e.g. mega-deals) is highlyinfluenced by the systems thinking behaviour that managers tend to adopt when working within the capitalmarket dynamics. We believe there are non-strategic factors with a strong impact on the willingness forfirms to acquire2.Vast research finds that in average acquisitions deliver value only in 30 to 50% of the deals (seeSudarsanam, 2003, ch. 4)3.We are convinced that the global crisis may bring some structural changes in regulations, stock marketperceptions and others likely to reduce the incentives for managers to focus on quick short term growth4.Based on the research assumptions, we believe the world post crisis environment will have less incentivesfor extreme short term focus and that less but more value creating acquisitions may take place

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