The Dog that Didn’t Bark: Long-Term Strategies in Times of Recession
London Business School
December 30, 2016
We investigate how U.S. companies adjusted their investments in key strategic resources -- i.e., human capital, tangible, and intangible resources -- during the Great Recession of 2007-2009. To obtain exogenous variation in the severity of the crisis, we exploit the differential intensity of the house price collapse across U.S. regions, instrumenting house price shocks with Saiz' (2010) topological measure of housing supply elasticity. Our findings indicate that companies significantly laid off employees and curtailed capital expenditures. Importantly, they did not reduce investments in R&D and corporate social responsibility (CSR). We further document that firms that sustained their R&D and CSR performed better once the economy recovered. Overall, these findings confirm our theoretical arguments suggesting that intangible strategic resources such as innovation capability and stakeholder relations are instrumental in sustaining a competitive advantage during (and beyond) times of crisis.
Number of Pages in PDF File: 38
Keywords: recession; competitive strategy; innovation; corporate social responsibility; employment; physical capital; financial performance
JEL Classification: M1, M2, M10, M14, E32, O31, O32
Date posted: June 22, 2015 ; Last revised: December 30, 2016