Creating value in the face of declining performance: Firm strategies and organizational recovery

Firms that have failed to meet the performance expectations of investors must seek new ways of creating value or face the loss of financial support. Using resource-based arguments, we find that valuable and difficult-to-imitate strategies that recombine the firm's existing stock of resources to create new products, processes, or technologies have a positive effect on organizational recovery as measured by investors' expectations. Similarly, acquiring new resources through mergers or acquisitions also has positive effects on investors' expectations. In contrast, valuable and difficult-to-imitate strategies that provide the firm with access to new resources through alliances or joint ventures do not affect investors' expectations of performance. We also find that taking actions that are not valuable and difficult-to-imitate either have no effect on performance or may lead to further performance declines. Lastly, our results show that valuable and difficult-to-imitate strategic actions that use existing resources in new ways contribute the most to organizational recovery. Copyright (c) 2007 John Wiley & Sons, Ltd.