The structure of financial strategy: Patterns in financial decision making

Abstract

A corporation's financial strategy has substantial potential to influence shareholder value creation. Financial strategy is the product of the corporation's 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.