The valuation implications of strategy in R&D-intensive industries

Purpose: The purpose of this paper is to investigate the valuation impact of firm’s strategic choices in a setting of intangibles-rich industries. Design/methodology/approach: The authors adopt the conceptual framework of Miles and Snow (1978, 2003), which identifies three viable types of firms based on their organizational strategy profiles: defenders, prospectors and analyzers. The authors use a replicable strategy score, whose scoring convention is based on rolling ratings of six ratios for the previous four years (Bentley et al., 2013), to distinguish between prospector and defender strategies. Findings: The authors offer empirical evidence that supports the hypothesis that prospector strategies are positively associated with firm value in the industries of electronics and electrical equipment, pharmaceuticals and biotechnology and technology hardware and equipment. The authors do not find evidence to support such a relationship in the software and computer services sector. Research limitations/implications: The results of this study have significant implications for researchers, who adopt a market-based accounting research framework to examine the characteristics, performance and valuation of firms with different strategic orientation. Practical implications: The findings of this paper are useful to managers, who would like to pursue a value-adding strategy in dynamic industrial environments that are characterized by high levels of innovation, risk and growth. Originality/value: Although previous studies have yielded mixed results with respect to the association between firm’s performance and prospector strategy, the authors identify a set of R&D-intensive industries, where the implementation of the prospector strategy adds significant value to the shareholders’ wealth.