Modeling the relationship between corporate strategy and wealth creation using neural networks

In this paper, we hypothesize that there is a non-linear relationship between corporate strategy, short-run "nancial variables, and wealth creation measured as market value added (MVA), and use neural networking to model this relationship. The neural network model accurately categorized over 90% in the training set and nearly 93% of "rms in the holdout test sample. Additional analysis revealed that strategy variables were particularly e!ective predictors of an upward trend in wealth creation whereas short-run "nancial variables were more e!ective in predicting a downward trend, or wealth destruction. Neural networks outperformed discriminant analysis in predictive ability in all analyses, suggesting the presence of non-linear e!ects. This research represents a "rst attempt to use neural networking to model the relationship between corporate strategy and wealth creation.