Strategy Typology and Cost Structure: A Textual Analysis Approach

65 Pages Posted: 18 May 2021 Last revised: 21 Mar 2022

See all articles by Rajiv D. Banker

Rajiv D. Banker

Temple University - Department of Accounting

Rong Huang

Department of Accounting, School of Management, Fudan University

Xiaorong Li

Antai College of Economics and Management, Shanghai Jiaotong University

Yan Yan

Fairleigh Dickinson University

Date Written: May 17, 2021

Abstract

In this study, we follow the strategy typology proposed by Treacy and Wiersema (1995) and develop a textual measure of firms’ generic strategy along three dimensions: product leadership, customer intimacy, and operational excellence. Product-leadership firms emphasize innovation and confront high congestion risk caused by rapid growth. We hypothesize that these firms adopt a more rigid cost structure with higher fixed and lower variable costs to promote innovation and reduce congestion risk. Consistent with our prediction, we find that product-leadership firms exhibit higher cost rigidity than customer-intimacy and operational-excellence firms. This finding is robust to using a difference-in-difference approach based on a quasi-natural shock caused by the adoption of the Inevitable Disclosure Doctrine. Furthermore, we find that the effects of the three strategies on cost structure are intensified by R&D investment, customer concentration, and asset utilization, respectively. Collectively, our findings suggest that organizational strategy has a significant impact on firms’ resource commitments and capacity choices.

Keywords: Product-leadership strategy, customer-intimacy strategy, operational-excellent strategy, textual analysis, cost structure, cost rigidity

JEL Classification: L21, L22, M40, M41

Suggested Citation

Banker, Rajiv D. and Huang, Rong and Li, Xiaorong and Yan, Yan, Strategy Typology and Cost Structure: A Textual Analysis Approach (May 17, 2021). Fox School of Business Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3847856 or http://dx.doi.org/10.2139/ssrn.3847856

Rajiv D. Banker

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Rong Huang

Department of Accounting, School of Management, Fudan University ( email )

670 Guoshun Rd.,
Shanghai, Shanghai
China

Xiaorong Li

Antai College of Economics and Management, Shanghai Jiaotong University ( email )

No. 1954, Huashan Road
Xuhui District
Shanghai, 200030
China

Yan Yan (Contact Author)

Fairleigh Dickinson University ( email )

1000 River Rd
Teaneck, NJ 07666
United States

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