Strategic Decision Making in the Digital Age: Expert Sentiment and Corporate Capital Allocation

Steffen Nauhaus*, Johannes Luger, Sebastian Raisch

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We develop a theoretical perspective on how the increasing data availability in the digital age affects firms’ strategic decisions. Specifically, we explore whether, and under which conditions, external experts’ collective assessment of product-technology domains impacts firms’ allocation of capital to their strategic business units engaged in these domains. Drawing on decision comprehensiveness theory, we propose that such expert sentiment has informational value for capital allocation decisions, and that this value is contingent on the available information’s determinacy and quantity. We find evidence for our propositions by studying 669 capital allocation decisions made by 85 pharmaceutical firms from 2005 to 2016, and by using supervised machine learning classifiers to analyze expert sentiment in 250,000 articles. Our study contributes to the behavioral theory of the firm by showing that, contrary to what scholars traditionally assume, decision makers broaden, rather than narrow, their information processing in comprehensive information environments
Original languageEnglish
JournalJournal of Management Studies
Number of pages29
ISSN0022-2380
DOIs
Publication statusPublished - 18 Jun 2021

Bibliographical note

Epub ahead of print. Published online: 18 June 2021

Keywords

  • Behavioral theory
  • Capital allocation
  • Decision making
  • Digitalization
  • Sentiment

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