The Impact Of Performance Expectation Gap On Corporate Strategic Change—Evidence from Listed Companies in the IT Industry

Luyao Huangfu,Fang Wang,Dan Liu,Nan Wu

doi:10.5539/ibr.v14n11p46

Luyao Huangfu, Fang Wang + Show 2 more

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https://doi.org/10.5539/ibr.v14n11p46

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Abstract

Based on the panel data of Chinese listed companies in the information technology industry from 2007 to 2018, this paper uses a fixed-effect model to study the relationship between corporate performance expectation gap and strategic change and analyzes the moderating effect of private benefits of management control and equity incentive. It is found that the greater the gap between corporate performance expectations is, the lower the frequency of corporate mergers and acquisitions is, and the higher the frequency of corporate asset divestment is. Further research finds that private benefits of management control weaken the positive correlation between corporate performance expectation gap and asset stripping frequency. Equity incentive strengthens the negative correlation between corporate performance expectation gap and corporate mergers and acquisitions frequency, and the positive correlation between corporate performance expectation gap and corporate asset stripping frequency. Based on this, when enterprises carry out strategic change, enterprises should choose the direction of strategic change according to the degree of performance expectation gap, and promote the effective realization of strategic change by improving the governance of the board of directors and optimizing the management incentive mechanism.

Highlights

Strategic change is the behavior of enterprises to respond to market changes and fierce competition
Based on the enterprise behavior theory and principal-agent theory, this paper considers the influence of key individual management in the performance feedback model, to explore the selection of enterprise strategic change modes under different performance expectation gaps and the moderating effect of management
This paper mainly studies the following three aspects: How does the gap of corporate performance expectations affect the choice of strategic change (M&A or asset stripping)? Second, how do private benefits of management control affect the relationship between corporate performance expectations http://ibr.ccsenet.org

Summary

Introduction

Strategic change is the behavior of enterprises to respond to market changes and fierce competition. Factors affecting corporate strategic change behavior include internal and external aspects. Non-marketized strategic behavior can highlight the unique significance contained in the current domestic economic transformation, it is precisely because of this particularity that it may reduce the universality of research conclusions and the extensive guidance of research results (Peng, 2003). It is necessary to study the market-oriented strategic behavior. The performance expectation and performance feedback of enterprises are important perspectives for analyzing strategic behavior such as enterprise change (Kim & Rhee, 2017). Strategic change decisions are influenced by both enterprise and key individuals such as management. In the decision-making of enterprise strategic change, the management will inevitably consider their interests and use their powers to seek private benefits for themselves. Equity incentive can make the interests of management, enterprises, and shareholders tend to be consistent, making it a 'Community of a Shared Future', sharing revenue and sharing risks (Jayaraman & Milbourn, 2015; Hass, Tarsalewska, & Zhan, 2016; Armstrong, Larcker, Ormazabal, & Taylor, 2013)

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