9/11, a bursting .com bubble, and the Great Financial Crisis of 2008 are but some of the many events that within recent years have contributed to ‘a new competitive landscape’, in which firms compete in markets that are more turbulent and unsettled. Both strategic management and finance scholars have sharpened their focus on how firms can adapt to increasingly volatile and dynamic markets. This thesis argues that the firm can strengthen its competitive advantage in such a new landscape through building and enhancing its dynamic capabilities, that enables it to adapt it’s resource base to comply with new demands in its environment. Furthermore it is argued, that slack resources, i.e. the resources that are above and beyond what it takes to run the everyday business, play a key role in this adaptation process by broadening the range of strategic options that a firm has in any given change of environmental circumstance. This thesis joins together the previously disjointed theoretical constructs of dynamic capabilities and slack resources into a theoretical framework with aid from the logic underlying real option theory. This framework sets forth two key hypotheses: firstly, that more effective dynamic capabilities is associated with higher return and lower risk outcomes, and secondly that this relationship between effective dynamic capabilities and attractive risk/return outcomes is stronger in firms operating with higher levels of slack resources. The hypotheses are tested on two samples of US listed corporations during the two distinct time periods, 1991-2000 (1,097 firms) and 2001-2010 (1,234 firms). The two time periods enable an investigation into the effect of macroeconomic conditions on the hypothesized relationships. To enable empirical testing of the assertions, the thesis proposes a measure of the effectiveness with which a firm develops and deploys its dynamic capabilities, namely the average standard deviation of return on assets during a ten-year period. By use of ordinary least squares multiple regression analysis, the empirical study broadly supports the assertion, that more effective dynamic capabilities can drive higher return outcome at lower risk. As expected this effect is stronger during the more turbulent macroeconomic conditions of the 2000s compared to the 1990s. However, only moderate support is found for the second assertion, that the effective dynamic capabilities have a more attractive risk/return effect in firms with higher levels of slack resources. The supportive effect of higher levels of slack resources seems to be most evident during the 1990s, while it is only partially present during the 2000s. This underlines the role of macroeconomic conditions as well as the importance for managers in striking a balance between the adaptability and cost features of slack resources.
|Educations||MSc in Finance and Strategic Management, (Graduate Programme) Final Thesis|
|Number of pages||139|