Edited by Giovanni Battista Dagnino
Chapter 24: Crossing Boundaries between Contemporary Research in Strategy and Finance: Connecting the Firm’s Financial Structure and Competitive Strategy
Maurizio La Rocca and Elvira Tiziana La Rocca INTRODUCTION This chapter responds to the general call for integration between finance and strategy by examining how financial decisions are related to corporate strategy (Kochhar and Hitt, 1998).1 With relatively few exceptions, strategic management and finance appear to be in schizophrenic tension, if not in direct opposition (Ward and Grundy, 1996). Bettis (1983) argued that modern financial theory and strategic management are based on very different paradigms, resulting in opposing conclusions. The conflicting state of these two knowledge systems might not matter if managers were able to make the linkages between strategy and finance with ease in practice (Grundy, 1992). But the few (empirical) studies available suggest that general managers do not find these linkages at all easy to make. The polarity between finance and strategy, two areas of research that have been traditionally studied in a separate fashion, is just apparent. Conversely, these two research and teaching areas present manifold connections, and it is relevant to understand the way in which these areas function individually and interrelate. In particular, the link between financial decisions and strategy is largely unexplored. An extremely relevant topic, notoriously controversial, to the academic and business communities relates to capital structure decisions and their effects on firms’ creation of value. A firm’s capital structure refers, generally, to the mix of its financial liabilities. In analysing capital structure we focused on the type of funds, debt or equity, used in the firm for financing. Debt and equity...
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