Essays on Secondary Financial Markets and Firm Strategic Decisions

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Date
Authors
Goudarzi, Kamyar
Keyword
Strategic Management , Corporate Strategy , Secondary Financial Markets
Abstract
This dissertation explores the relationship between stock valuations on secondary financial markets and firm strategic decisions. In separate empirical studies, I examine three aspects of this relationship. In the first essay, I explore the influence of corporate strategy and structure on how firms respond to stock valuations when determining their capital investments. The second essay examines how the extent of firm-specific information in stock valuations impacts firms' tendency to adopt unique, difficult-to-value corporate strategies. Finally, in the third essay, I study the influence of stock valuations on how firms invest during economic crises. The first essay shows that more unique firms are less sensitive to information and feedback from market valuations when making capital investment decisions, however, not when demand uncertainty is high or when their investors are more likely to trade frequently on private information. The second essay finds that firms adopt more unique corporate strategies in response to more informative valuations. In other words, firms appear to cater the uniqueness, and in turn valuation difficulty, of their corporate strategies to the level of their investors' firm-specific information inferred through market valuations. Finally, the third essay shows that valuations may (mis)lead firms in determining responses to economic crises. That is, valuation changes at the onset of a crisis may lead firms to discount internal information and undermine the risks of investing in downturns. These studies contribute to our understanding of the role of secondary financial markets in explaining firms' strategic decisions and highlight that trading in secondary financial markets can reveal signals to firms that can influence strategic decisions with significant performance implications.
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