Strategic Management during the Financial Crisis: How Firms Adjust their Strategic Investments in Response to Credit Market Disruptions

60 Pages Posted: 22 Jun 2015 Last revised: 3 Nov 2020

See all articles by Caroline Flammer

Caroline Flammer

Boston University

Ioannis Ioannou

London Business School - Department of Strategic & International Management

Date Written: November 2, 2020

Abstract

This study investigates how companies adjusted their investments in key strategic resources -- i.e., their workforce, capital expenditures, R&D, and CSR -- in response to the sharp increase in the cost of credit (the "credit crunch") during the financial crisis of 2007-2009. We compare companies whose long-term debt matured shortly before versus after the credit crunch to obtain (quasi-)random variation in the extent to which companies were hit by the higher borrowing costs. 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 post-crisis.

Keywords: financial 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, Strategic Management during the Financial Crisis: How Firms Adjust their Strategic Investments in Response to Credit Market Disruptions (November 2, 2020). Available at SSRN: https://ssrn.com/abstract=2621247 or http://dx.doi.org/10.2139/ssrn.2621247

Caroline Flammer (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

HOME PAGE: http://sites.bu.edu/cflammer/

Ioannis Ioannou

London Business School - Department of Strategic & International Management ( email )

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

HOME PAGE: http://www.ioannou.us

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