A Survey of the Relation Between Capital Structure and Corporate Strategy
This paper responds to the general call for integration between finance and strategy researchby examining how financial decisions are related to corporate strategy. In particular, the paperfocuses on the link between capital structure and strategy. Corporate strategies complementtraditional finance...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
University of Wollongong
2008-06-01
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| Series: | Australasian Accounting, Business and Finance Journal |
| Subjects: | |
| Online Access: | http://ro.uow.edu.au/aabfj/vol2/iss2/1 |
| _version_ | 1819051348613660672 |
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| author | M. La Rocca T. La Rocca Dionigi Gerace |
| author_facet | M. La Rocca T. La Rocca Dionigi Gerace |
| author_sort | M. La Rocca |
| collection | DOAJ |
| description | This paper responds to the general call for integration between finance and strategy researchby examining how financial decisions are related to corporate strategy. In particular, the paperfocuses on the link between capital structure and strategy. Corporate strategies complementtraditional finance paradigms and extend our insight into a firm’s decisions regarding capitalstructure. Equity and debt must be considered as financial instruments as well as strategicinstruments of corporate governance (Williamson 1988). Debt subordinates governanceactivities to stricter management, while equity allows for greater flexibility and decisionmakingpower.The literature on finance and strategy analyzes how the strategic actions of key players(managers, shareholders, debtholders, competitors, workers, suppliers, etc) affect firm valueand the allocation of value between claimholders. Specifically, financing decisions canconcern value creation process (1) influencing efficient investments decisions according to theexistence of conflict of interest between managers and firm’s financial stakeholders(shareholders and debtholders) and (2) affecting the relationship with non-financialstakeholders, as suppliers, competitors, customers.To summarize, the potential interaction between managers, financial stakeholders, and nonfinancialstakeholders influences capital structure, corporate governance activities, and valuecreation processes. These in turn, may give rise to inefficient managerial decisions or theymay shape the industry’s competitive dynamics to achieve a competitive advantage. A goodintegration between strategy and finance dimensions can be tantamount to a competitiveweapon. |
| first_indexed | 2024-12-21T12:02:31Z |
| format | Article |
| id | doaj.art-33a2c6cff0724e2db9840027d70ec232 |
| institution | Directory Open Access Journal |
| issn | 1834-2000 1834-2019 |
| language | English |
| last_indexed | 2024-12-21T12:02:31Z |
| publishDate | 2008-06-01 |
| publisher | University of Wollongong |
| record_format | Article |
| series | Australasian Accounting, Business and Finance Journal |
| spelling | doaj.art-33a2c6cff0724e2db9840027d70ec2322022-12-21T19:04:46ZengUniversity of WollongongAustralasian Accounting, Business and Finance Journal1834-20001834-20192008-06-0122118A Survey of the Relation Between Capital Structure and Corporate StrategyM. La RoccaT. La RoccaDionigi GeraceThis paper responds to the general call for integration between finance and strategy researchby examining how financial decisions are related to corporate strategy. In particular, the paperfocuses on the link between capital structure and strategy. Corporate strategies complementtraditional finance paradigms and extend our insight into a firm’s decisions regarding capitalstructure. Equity and debt must be considered as financial instruments as well as strategicinstruments of corporate governance (Williamson 1988). Debt subordinates governanceactivities to stricter management, while equity allows for greater flexibility and decisionmakingpower.The literature on finance and strategy analyzes how the strategic actions of key players(managers, shareholders, debtholders, competitors, workers, suppliers, etc) affect firm valueand the allocation of value between claimholders. Specifically, financing decisions canconcern value creation process (1) influencing efficient investments decisions according to theexistence of conflict of interest between managers and firm’s financial stakeholders(shareholders and debtholders) and (2) affecting the relationship with non-financialstakeholders, as suppliers, competitors, customers.To summarize, the potential interaction between managers, financial stakeholders, and nonfinancialstakeholders influences capital structure, corporate governance activities, and valuecreation processes. These in turn, may give rise to inefficient managerial decisions or theymay shape the industry’s competitive dynamics to achieve a competitive advantage. A goodintegration between strategy and finance dimensions can be tantamount to a competitiveweapon.http://ro.uow.edu.au/aabfj/vol2/iss2/1Overinvestmentunderinvestmentrisk-shiftingcapital structurecorporate strategy |
| spellingShingle | M. La Rocca T. La Rocca Dionigi Gerace A Survey of the Relation Between Capital Structure and Corporate Strategy Australasian Accounting, Business and Finance Journal Overinvestment underinvestment risk-shifting capital structure corporate strategy |
| title | A Survey of the Relation Between Capital Structure and Corporate Strategy |
| title_full | A Survey of the Relation Between Capital Structure and Corporate Strategy |
| title_fullStr | A Survey of the Relation Between Capital Structure and Corporate Strategy |
| title_full_unstemmed | A Survey of the Relation Between Capital Structure and Corporate Strategy |
| title_short | A Survey of the Relation Between Capital Structure and Corporate Strategy |
| title_sort | survey of the relation between capital structure and corporate strategy |
| topic | Overinvestment underinvestment risk-shifting capital structure corporate strategy |
| url | http://ro.uow.edu.au/aabfj/vol2/iss2/1 |
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