Corporate strategy and shareholder value during decline and turnaround Olivier Furrer Nijmegen School of Management, Radboud University, Nijmegen, The Netherlands J. Rajendran Pandian Department of Management, University of Wollongong, Wollongong, Australia, and Howard Thomas Warwick Business School, University of Warwick, Coventry, UK Abstract Purpose – The paper aims to assess the impact of corporate strategy on shareholder value in decline and turnaround situations. Design/methodology/approach – A sample of 45 turnaround firms was selected and matched against a control sample which did not face continuous decline over the time period studied. The impact of corporate strategy on shareholder value was tested using cumulative beta excess return measures to capture the long-term basis of corporate strategy. Findings – The paper finds that the beta excess return measures captured the hypothesized relationships between strategy and shareholder value for the sample firms studied. Practical implications – Beta excess return measures are superior to case studies or event studies for identifying the long-term effects of corporate strategy. Originality/value – Relatively few studies have compared the strategies of turnaround firms with a matched sample of non-declining firms. The use of cumulative beta excess returns to assess long-term valuation of corporate strategy is original. Keywords Corporate strategy, Shareholder value analysis, Turnarounds Paper type Research paper The aim of this paper is to assess empirically the impact of corporate strategy on shareholder value. Such an examination is of importance for several reasons: first, shareholders are undoubtedly the dominant stakeholders in a publicly quoted firm. They can affect the future of a firm by changing the management if the majority of shareholders are not convinced of the effectiveness of their strategies (Barker et al., 2001; Grinyer and Spender, 1979; Hedberg et al., 1976; Hofer, 1980; Nystrom and Starbuck, 1984; Ormerod, 2005; Pajunen, 2006; Slatter, 1984). Despite the increasing popularity of the shareholder value analysis (Rappaport, 1998; Doyle, 2000; McGee et al., 2005), there exists little empirical research supporting Rappaport’s conclusions. In fact, Woo (1984) concluded that the empirical findings did not provide support for the suggestion that basing strategic decisions on these models (e.g., constant growth model, two-stage model, etc.) would result in increased shareholder value. Woo felt that it was necessary to conduct more empirical tests of these models and to assess their validity in order to increase users’ (practicing managers’) confidence. The current issue and full text archive of this journal is available at www.emeraldinsight.com/0025-1747.htm MD 45,3 372 Management Decision Vol. 45 No. 3, 2007 pp. 372-392 q Emerald Group Publishing Limited 0025-1747 DOI 10.1108/00251740710745025