Value Creation and Destruction: A Study of the US Medical Devices Industry

Anuja Gupta, Rutgers School of Business

Abstract: This dissertation studies firm strategy to gain technological knowledge from external sources in dynamic industries and the performance implications of these strategies. In dynamic industries, firms need to integrate new knowledge, and build new resources and capabilities to maintain competitive advantage. By focusing on the external sources of technological knowledge through alliances and acquisitions, this dissertation analyzes how the external learning strategy of the firm impacts its stock market valuation. The first essay is a longitudinal study of one of the leading firms in the US cardiovascular medical device industry, Medtronic Inc, from its early years as a public company to 2006. The study analyzes the external technological search strategy of the firm (i.e. technology alliances and acquisitions), and links this strategy to the long term market valuation measure, or long term cumulative abnormal returns (LCAR). The second essay analyzes this link between the performance of firms and their technology strategy in a large sample. Specifically, the study hypothesizes & finds support that in the long run, exploration is more highly valued as a strategy compared to exploitation, but not for firms that are under-performing. Further, in the short run, the stock market values exploitation more than exploration. This study fills a gap in the literature by analyzing the nature of technology searched and reports a pooled time-series analysis of all public firms in the US cardiovascular device industry from 1990 to 2006. The third essay explores the use of valuation as a measure of performance and describes the analysis of short term stock market valuation of strategic events by developing a new measure of stock performance composed of these events (termed “Event Based Cumulative Abnormal Return, or EBCAR); and comparing this measure to the longer term valuation of the stock (LCAR) in an attempt to determine the contribution of strategically significant events on the long term performance of the company.

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