Abstract
Business valuation is essential at every stage of the firm life cycle, from establishing investment value for early and later stage growth venture capital funding to pricing of private equity transactions or initial public offerings, and for assessment of stock prices in public markets. Firms typically evolve in markets under competition and demand dynamics where uncertainty around their future opportunities has implications for investments, survival and available strategic choices. Value creation under such circumstances is dependent on strategic flexibility in response to changes in the business environment that introduce path-dependency and significant non-linear effects into the earnings processes. In spite of its importance, studies uncover that fundamental business valuation approaches commonly applied within venture capital, private equity and public equity are unable to effectively explain non-linear effects, and also that we know comparably little about how firms’ strategic behaviour and decisions relate to firm performance and value across firm development stages.Hence, the purpose of this thesis is to contribute to knowledge by investigating how increased understanding of strategic flexibility at all firm development stages can lead to improved fundamental business valuation. Given the fragmented state of the research, this study opens with a critical review of the literatures, followed by two research papers that each address identified limitations using large samples of listed firms to allow for estimation of implied growth options useful to the analysis. The first paper addresses the open question whether business model dimensions can provide an effective approach to peer selection. The findings, despite an early contribution, suggest that strategic dimensions provide incremental information over common industry-anchored approaches with applications suitable for firms with limited financial history. In the second paper, recent evidence in the real options research that links effects of fundamental skewness to realised firm-level flexibility is extended to address the lack of a comparable proxy for strategic flexibility in the strategic management literature by proposing a novel proxy (strategic intensity). The proxy is applied to analyse and answer open questions about firm-level flexibility, growth, survival and value creation across stages of firm development. Findings confirm a general positive relationship between realised strategic flexibility and performance, and uncover that higher levels of strategic flexibility exhibit long-term persistence, and can predict future levels of profitability and market value.
The thesis makes two major methodical contributions in line with the purpose. The addition of strategic intensity adds a lens to increase our understanding of how firms are able to realise strategic flexibility with applications in research and valuation, and peer selection on strategic choice via business model dimensions provides a succinct method suitable for firm valuation.
Date of Award | 1 Jan 2024 |
---|---|
Original language | English |
Awarding Institution |
|
Supervisor | Colin Clubb (Supervisor) & Tarik Driouchi (Supervisor) |