Strategy over the business cycle

Abstract

This article develops an analytical and empirical framework for examining strategy over the business cycle. Firms were observed to adjust their strategies sign@cantly and asymmetrically over business cycle stages. There was no consistency in performance between up markets and down markets. A variable-parameter profitability model of strategy in a cyclical industry suggested the importance of a strategy's contemporaneous and inter-temporal relationships with performance. Discrepancies were observed between actual strategies and optimal strategies over business cycle stages.

Strategies for Superior Performance in Recessions: Pro or Counter-Cyclical?

“…The impact of recessions on firm performance and how firms should react is an unexplored research stream (Bromiley et al, 2008;Mascarenhas & Aaker, 1989). Our study contributes to the strategy literature in business cycle management.…”

“…Despite an undeniable need to preserve short-term cash, firms must invest for future growth, as some long-term industry trajectories and related firm objectives should not change (Dye, Sibony, & Viguerie, 2009). Firms can take advantage of undervalued assets in the market (Mascarenhas & Aaker, 1989) to develop new business opportunities, differentiate themselves, and overtake competitors (Nunes, Drèze, & Han, 2010). They are able to both achieve immediate returns (Srinivasan et al, 2005) and prepare for long-term success (Franke & John, 2011).…”

“…They also tend to continue with the firm during recovery, which prevents rehiring at increased costs. Second, high recession unemployment (Hall, 2005) raises the pool of qualified labor available in the market, which allows hiring at lower wages (Mascarenhas & Aaker, 1989).…”

“…It becomes more common for customers to default and request loosening of pay-ment terms (Ang et al, 2000). To keep sales at a reasonable level, firms usually succumb to customers' pressures and expand their credit (Mascarenhas & Aaker, 1989). However, during recessions, firms should carefully monitor customers' performances and adjust credit policies, accelerating collections and tightening credit terms to reduce the risk of nonpayment (Dye et al, 2009).…”

“…To our knowledge, this is the first study to propose and test an integrative model with several variables to analyze recessions. Moreover, we do so in less traditional contexts proposed by some authors, such as non-listed companies (Mascarenhas & Aaker, 1989). …”