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

Steffen Nauhaus; Johannes Luger; Sebastian Raisch

doi:10.1111/joms.12742

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

Steffen Nauhaus^*
, Johannes Luger
, Sebastian Raisch

^*Corresponding author for this work

Department of Strategic Management and Entrepreneurship

Copenhagen Business School
University of Geneva

Research output: Contribution to journal › Article › Academic › peer-review

50 Citations (Scopus)

344 Downloads (Pure)

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 analyse expert sentiment in almost 250,000 articles. Our study contributes to the behavioural 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 language	English
Pages (from-to)	1933-1961
Number of pages	29
Journal	Journal of Management Studies
Volume	58
Issue number	7
DOIs	https://doi.org/10.1111/joms.12742
Publication status	Published - Nov 2021

Bibliographical note

Funding Information:
The authors wish to thank the Special Issue Editors Julian Birkinshaw, David Collis, Nicolai Foss, Robert Hoskisson, Sven Kunisch, and Markus Menz, as well as three anonymous reviewers, for their guidance on developing the paper. Furthermore, they are grateful to Tina Ambos, Tomi Laamanen, and the participants of the 2019 JMS workshop at Harvard Business School for their valuable comments on earlier versions of the paper. This research received partial support from the Swiss National Science Foundation [SNSF grants 157026 and 185164].

Publisher Copyright:
© 2021 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd.

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Strategic Decision Making in the Digital Age Expert Sentiment and Corporate Capital AllocationFinal published version, 480 KBLicence: CC BY-NC-ND

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title = "Strategic Decision Making in the Digital Age: Expert Sentiment and Corporate Capital Allocation",

abstract = "We develop a theoretical perspective on how the increasing data availability in the digital age affects firms{\textquoteright} strategic decisions. Specifically, we explore whether, and under which conditions, external experts{\textquoteright} collective assessment of product-technology domains impacts firms{\textquoteright} 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{\textquoteright}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 analyse expert sentiment in almost 250,000 articles. Our study contributes to the behavioural 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.",

author = "Steffen Nauhaus and Johannes Luger and Sebastian Raisch",

note = "Funding Information: The authors wish to thank the Special Issue Editors Julian Birkinshaw, David Collis, Nicolai Foss, Robert Hoskisson, Sven Kunisch, and Markus Menz, as well as three anonymous reviewers, for their guidance on developing the paper. Furthermore, they are grateful to Tina Ambos, Tomi Laamanen, and the participants of the 2019 JMS workshop at Harvard Business School for their valuable comments on earlier versions of the paper. This research received partial support from the Swiss National Science Foundation [SNSF grants 157026 and 185164]. Publisher Copyright: {\textcopyright} 2021 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley \& Sons Ltd.",

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

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