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Generic Strategies and Sustainability of Financial Performance
Rajiv D Banker, Temple University
Raj Mashruwala, Washington University in St. Louis
Arindam Tripathy, SUNY At Albany
ABSTRACT. In this paper we investigate the relationship between the strategic positioning of firms and the sustainability of financial performance. First, we develop measures using publicly available data for the constructs reflecting firms’ realized strategic positioning. We employ these measures in empirical models to examine the sustainability of firms’ financial performance. The results indicate that although pursuing both efficiency and differentiation strategies have a positive impact on contemporaneous performance, the differentiation strategy allows a firm to sustain its current performance in the future to a greater extent than an efficiency strategy. Further results indicate that capital market participants recognize that firms adopting a differentiation strategy are better able to sustain financial performance and accordingly give a higher price-earnings multiple to such firms.
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