To Save or to Invest? Strategic Management during the Financial Crisis
41 Pages Posted: 22 Jun 2015 Last revised: 30 Oct 2018
Date Written: October 28, 2018
Using an exploratory approach, we investigate how companies adjusted their investments in key strategic resources--i.e., their workforce, capital expenditures, R&D, and CSR--in response to the recent financial crisis. In August 2007, the cost of credit sky-rocketed due to the collapse of the asset-backed securities market. We compare companies whose long-term debt matured shortly before and after August 2007 to obtain (quasi-)random variation in the extent to which companies were hit by the financial crisis--similar to a regression discontinuity design. We find that companies that were adversely affected followed a "two-pronged" approach of curtailing their workforce and capital expenditures, while maintaining their investments in R&D and CSR. We further document that firms that followed this two-pronged approach performed better once the economy recovered.
Keywords: financial crisis; competitive strategy; corporate social responsibility; innovation; employment; physical capital; financial performance
JEL Classification: M1, M2, M10, M14, E32, O31, O32
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