Financial Decision-Making and Corporate Value Creation: A Strategic Management Perspective

Abstract

Corporate value is created or destroyed through decisions: which businesses to enter, which projects to fund, which companies to acquire, how to finance growth and how much cash to return to owners. This article examines financial decision-making from a strategic management perspective. It argues that the quality of financial decisions depends not only on technical tools such as discounted cash flow analysis, but also on how decisions fit a firm’s resources and competitive position, how decision processes are organised and how managers’ judgement is shaped by cognitive biases and incentives. The article first defines value creation in terms of returns on invested capital relative to the cost of capital. It then links finance to strategic management theories, including the resource-based view, dynamic capabilities and stakeholder theory. Key financial decisions are examined as strategic choices: internal capital allocation, mergers and acquisitions, diversification, financing and payout, and investment under uncertainty using real options. The article reviews evidence on bounded rationality, managerial overconfidence, escalation of commitment and short-termism, and discusses how governance can improve decision quality. It closes with lessons from the Indian corporate context and a framework for value-creating financial decisions.