To Save or to Invest? Strategic Management during the Financial Crisis

40 Pages Posted: 22 Jun 2015 Last revised: 16 Jan 2018

Caroline Flammer

Boston University

Ioannis Ioannou

London Business School

Date Written: January 15, 2018


We exploit the credit crunch of 2007 to empirically examine how companies adjusted their investments in key strategic resources---i.e., their workforce, capital expenditures, R&D, and corporate social responsibility (CSR)---in response to the 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. 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: economic crisis; competitive strategy; corporate social responsibility; innovation; employment; physical capital; financial performance

JEL Classification: M1, M2, M10, M14, E32, O31, O32

Suggested Citation

Flammer, Caroline and Ioannou, Ioannis, To Save or to Invest? Strategic Management during the Financial Crisis (January 15, 2018). Available at SSRN: or

Caroline Flammer (Contact Author)

Boston University ( email )

Boston University Questrom School of Business
595 Commonwealth Avenue, Office 634A
Boston, MA 02215
United States


Ioannis Ioannou

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
02070008748 (Phone)


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